DIRECTORS NORMAN BLACKWELL ADRIAN RINGROSE 1 TIM HAYWOOD (LORD - - PDF document

GOVERNANCE

52 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS

DIRECTORS

NORMAN BLACKWELL (LORD BLACKWELL) 1 3 Chairman

Norman was appointed Chairman of Interserve in January 2006 having joined the Group as a non-executive director the previous September. He is a non-executive director

• f Lloyds Banking Group and was

appointed Chairman of its insurance subsidiary (Scottish Widows Group) in September 2012. He will become Chairman of Lloyds Banking Group in April 2014. During 2013 he was also a non-executive director of Halma and a non-executive board member of OFCOM and of the Centre for Policy

• Studies. A former partner of McKinsey

& Company, Norman was Head of the Prime Minister’s Policy Unit from 1995 to 1997 and was appointed a life peer in 1997. His past business roles have included Director of Group Development at NatWest Group, non- executive directorships at Standard Life, SEGRO and Dixons Group, Non- Executive Board Member of the Offjce

• f Fair Trading and Commissioner of
• Postcomm. Norman also chairs the

Nomination Committee.

ADRIAN RINGROSE 1 Chief Executive

Adrian has been Chief Executive of Interserve since 2003 during which time the Group has developed signifjcantly, from around 15,000 to

• ver 50,000 people, with operations

in over 20 countries providing services to governments and a range of commercial and industrial

• clients. Adrian’s background is

in commercial management and business development. Prior to leading Interserve he spent time in the outsourcing and utilities

• sectors. Adrian is a member of the

CBI President’s Committee and was for four years chairman of the CBI’s Public Services Strategy Board until late 2013. He is also a past President

• f the Business Services Association.

He is a member of the Chartered Institute of Marketing, the Chartered Management Institute and is a Fellow

• f the Institute of Directors. He is an

adviser to the University of Liverpool from where he has a degree in Political Theory and Institutions.

TIM HAYWOOD Group Finance Director

Tim joined Interserve as Group Finance Director in November 2010 and was previously Finance Director

• f St Modwen Properties. Earlier

roles include Group Finance Director at Hagemeyer UK and senior fjnance director and fjnancial controller positions in Williams Holdings. Tim is a Fellow of the Institute of Chartered Accountants in England and Wales. Since 2011 he has also been Head of Sustainability, launching Interserve’s SustainAbilities Plan in March 2013.

1 Member of the Nomination Committee 2 Member of the Audit Committee 3 Member of the Remuneration Committee 4 Senior Independent Director

OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

53 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS

OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

STEVEN DANCE Executive Director

Steven is Managing Director of RMD Kwikform, the Group’s Equipment Services division. He is the Board’s lead director in Health and Safety. He was appointed to the Board of Interserve in January 2008. Steven began his career with Schlumberger in the Middle East in the oilfjeld sector, after which he completed his MBA and moved into manufacturing. He then served 12 years with Coats Viyella where he held a variety of general management positions and was based in Germany, Portugal, South America and the UK. He subsequently worked for four years with ScottishPower, executing a number of M&A transactions including the disposal of utility subsidiaries in Australia and the UK, and the fmotation of Thus. Most recently he spent three years with ERICO heading divisions supplying the international construction market with couplers, fjxing and fastening systems, before joining Interserve in 2004. Steven is a Chartered Director and a member of the Board of Examiners at the Institute of Directors. He holds an MA in Natural Sciences from Oxford University and an MBA from London Business School.

BRUCE MELIZAN Executive Director

Bruce is Managing Director of Interserve’s Support Services

• division. He was appointed to the

Board of Interserve in January 2008. Bruce joined Interserve in 2003 and was Managing Director of Interserve Investments before being appointed to head Interserve Facilities Management in 2006. He has been in the outsourcing industry for nearly 20 years and has held a wide variety of roles ranging from direct delivery through to sales, marketing and general management. Previous

• rganisations include Amey, Mowlem,

Schlumberger and TYE Manufacturing both in the UK and globally. Bruce holds an MBA from Cranfjeld School of Management and a BSc in Electrical Engineering from Queen’s University, Canada. He is a member

• f the Business Services Association

Council and a Trustee of the Safer London Foundation.

DOUGIE SUTHERLAND Executive Director

Dougie is Managing Director of Interserve’s Investments division and is also responsible for UK Construction’s

• perations. He was appointed

to the Board of Interserve in January 2011. Dougie joined Interserve in September 2006 from 3i, where he was a partner in its infrastructure team. He began his career with seven years in the Royal Engineers and then, between 1995 and 1999, he worked for HM Treasury developing the Private Finance

• Initiative. From 1999 to 2004 Dougie

was Managing Director of Amey Ventures where he was responsible for a wide portfolio of bids and investments in the education, defence, rail and roads sectors. He then moved to Lend Lease where he was Managing Director of its health and education business before joining

• 3i. Dougie has a BSc (Hons) from

Edinburgh University and an MBA from Cranfjeld School of Management.

GOVERNANCE

DIRECTORS CONTINUED

GOVERNANCE

LES CULLEN 1 2 3 4 Non-Executive Director

Les brings a wealth of experience from a number of senior fjnancial roles in the UK and internationally. He joined Interserve as a non-executive director in October 2005. He is a non-executive director of F&C Global Smaller Companies and a former director of Avis Europe and Sustrans. He has held the post of Group Finance Director at De La Rue, Inchcape and Prudential. Les became Senior Independent Director in May 2013 following the retirement of David Trapnell.

ANNE FAHY 1 2 3 Non-Executive Director

Anne was appointed as non- executive director of Interserve on 1 January 2013. She is also Chief Financial Offjcer of BP’s Global Fuels

• business. During her 25 years at BP

Anne has gained extensive experience

• f global business, developing markets,

risk management, internal control, compliance and strategy development in BP’s aviation, petrochemicals, trading and retail sectors. Anne is a Fellow of the Institute of Chartered Accountants in Ireland having worked at KPMG in Ireland and Australia prior to joining BP in 1988. Anne has chaired the Audit Committee since May 2013.

KEITH LUDEMAN 1 2 3 Non-Executive Director

Keith was appointed as non-executive director of Interserve in January 2011. He is also non-executive Chairman

• f Bristol Water and a non-executive

director of Network Rail, Network Rail Infrastructure and Network Rail

• Consulting. Keith has many years’

experience in the rail and bus service industries, including some 15 years with Go-Ahead Group, of which he was Chief Executive for fjve years and where he was responsible for the negotiation and operation of complex public- service contracts and the management and motivation of large workforces. His early career included nine years working with Greater Manchester Transport and three years working

• n transport policy in Hong Kong.

54 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS

1 Member of the Nomination Committee 2 Member of the Audit Committee 3 Member of the Remuneration Committee 4 Senior Independent Director

OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

DAVID THORPE 1 2 3 Non-Executive Director

David joined Interserve as a non- executive director in January 2009. He is non-executive Chairman of The Innovation Group and Nair & Co Bidco. David’s executive career included a decade at Electronic Data Systems (EDS) which culminated in his becoming President of EDS Europe, and senior leadership roles at Bull Information Systems. He has also been Chairman of the Racecourse Association and a director of the British Horseracing Board. Previous non-executive roles include Arena Leisure, VT Group, Anite and Tunstall

• Holdings. David is a Liveryman of the

Worshipful Company of Information Technologists and a Chartered Public Finance Accountant. David chairs the Remuneration Committee.

ADVISERS

Group Company Secretary

Trevor Bradbury

Registered Offjce

Interserve House Ruscombe Park Twyford Reading Berkshire RG10 9JU T +44 (0)118 932 0123 F +44 (0)118 932 0206 info@interserve.com www.interserve.com

Registered Number

88456

Registrar and Share Transfer Offjce

Capita Asset Services The Registry 34 Beckenham Road Beckenham Kent BR3 4TU T +44 (0)20 8639 3399 F +44 (0)1484 600911 shareholderenquiries@capita.co.uk www.capitashareportal.com

Auditors

Deloitte LLP

Stockbrokers

J.P. Morgan Cazenove Limited Numis Securities Limited

Lawyers

Ashurst LLP

55 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS

56 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REPORT

GOVERNANCE

DIRECTORS’ REPORT

The directors present their report and the audited consolidated fjnancial statements for the year ended 31 December 2013. The directors’ responsibility for the preparation of the Annual Report and Financial Statements, which forms part

• f this report, and the statement by the auditors about

their reporting responsibilities, are set out on pages 98, and 99 to 103, respectively, of this Annual Report.

CHAIRMAN’S STATEMENT

A review of the development of the Group and its future prospects is included in the Chairman’s Statement, which is incorporated into this Directors’ Report by reference.

CORPORATE GOVERNANCE STATEMENT

The Disclosure and Transparency Rules of the Financial Conduct Authority (the “FCA”) require certain information to be included in a corporate governance statement in the Directors’ Report. Information that fulfjls the requirements

• f the corporate governance statement can be found in

the Corporate Governance report and the Audit Committee Report, which are incorporated into this Directors’ Report by reference.

GROUP RESULTS AND DIVIDENDS Financial reporting

The Group’s Consolidated Income Statement set out

• n page 104 shows Group profjt before taxation of

£68.1 million (2012: £179.8 million). The detailed results of the Group are given in the fjnancial statements on pages 104 to 149 and further comments on divisional results are given in the Operational Review on pages 22 to 33. Since the balance sheet date the Company has entered into a conditional agreement with subsidiaries of Rentokil Initial plc to acquire their facilities services business for a cash consideration of £250 million. Due to the size of this transaction it is subject to and conditional upon the approval

• f shareholders. A General Meeting has been convened for

this purpose and will be held at 10 a.m. on 17 March 2014 at the offjces of Ashurst LLP, Broadwalk House, 5 Appold Street, London EC2A 2HA. A notice of the General Meeting and of the resolution to be proposed and considered at this meeting has been sent separately to shareholders. There have been no further post balance sheet events that require disclosure

• r adjustment in the fjnancial statements.

Dividends

An interim dividend of 6.8p per 10p ordinary share (2012: 6.4p) was paid on 23 October 2013. The directors recommend a fjnal dividend of 14.7p per 10p ordinary share, making a total distribution for the year ended 31 December 2013

• f 21.5p per 10p ordinary share (2012: 20.5p). Subject to

approval of shareholders at the Annual General Meeting (“AGM”) on 13 May 2014, the fjnal dividend will be paid on 21 May 2014 to shareholders appearing on the register at the close of business on 4 April 2014. The shares will be quoted ex-dividend on 2 April 2014. The Company’s dividend reinvestment plan continues to be available to eligible shareholders. Further details of the plan are set out in the Shareholder Information section on page 167. Capita Trustees Limited, the trustee of the Interserve Employee Benefjt Trust (the “Trust”), waived its right to receive a dividend over 368,601 shares held by the Trust in the name of Capita IRG Trustees (Nominees) Limited in respect of the dividend paid in May 2013 and 647,411 shares in respect of the dividend paid in October 2013. The former trustee of the Trust, EES Trustees International Limited, waived its right to receive a dividend over 1,072,720 shares held by the Trust in respect of the dividend paid in May 2012 and 1,057,217 shares in respect of the dividend paid in October 2012.

SHARE CAPITAL General

The Company’s issued share capital as at 31 December 2013 comprised a single class of ordinary shares. All shares rank equally and are fully paid. No person holds shares carrying special rights with regard to control of the Company. During the year 1,564,400 shares were issued at par fully paid to participants of the Performance Share Plan (the “PSP”) on the vesting of awards granted in April 2010. A further 642,429 shares were issued fully paid to participants

• f the 2002 Executive Share Option Scheme (the “2002

ESOS”) at prices of 205.83p, 253.25p, 324.00p and 359.33p per share. As a result of the foregoing allotments, the Company’s issued share capital at the end of the year stood at 129,053,768 (2012: 126,846,939) ordinary shares of 10p each (£12,905,376.80) (2012: £12,684,693.90). Since the year end, a further 53,047 shares have been issued to participants of the 2002 ESOS at prices of 253.25p and 359.33p per share. The issued share capital at the date of this report therefore stands at 129,106,815 ordinary shares of 10p each (£12,910,681.50). Details of outstanding awards and options over shares in the Company as at 31 December 2013 are set out in notes 27 and 29 to the fjnancial statements on pages 139 and 140 respectively.

Issue of shares

Section 551 of the Companies Act 2006 (the “2006 Act”) provides that the directors may not allot shares unless empowered to do so by the shareholders. A resolution giving such authority was passed at the AGM held on 13 May 2013. The AGM authorities were used in 2013 only in relation to the issue of shares pursuant to the PSP and the 2002 ESOS as described above.

57

OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REPORT

This authority will also be used in connection with the placing of 12,897,771 shares (representing approximately 9.9 per cent of the Company’s issued ordinary share capital) by J.P. Morgan Cazenove and Numis Securities with institutional placees, the proceeds from which will be used, together with other funds, to fjnance the purchase of the facilities services business of Rentokil Initial plc should shareholders approve this transaction at the General Meeting to be held on 17 March 2014. In accordance with the guidelines issued by the Association of British Insurers (the “ABI”), the directors propose Resolution 18 set out in the Notice of AGM to renew the authority granted to them at the 2013 AGM to allot shares up to an aggregate nominal value of one-third of the Company’s issued share capital plus a further one-third (i.e. two-thirds in all) where the allotment is in connection with a rights issue. Under section 561 of the 2006 Act, if the directors wish to allot unissued shares for cash (other than pursuant to an employee share scheme) they must fjrst offer them to existing shareholders in proportion to their holdings (a pre- emptive offer). Resolution 19 set out in the Notice of AGM will be proposed as a special resolution in order to renew the directors’ authority to allot shares for cash other than by way

• f rights to existing shareholders. By restricting such authority

to an aggregate nominal value of no more than 5 per cent of the Company’s total issued equity capital, the Company will be in compliance with the Pre-Emption Group’s Statement of Principles (the “Principles”). Shareholders should note that the Listing Rules of the FCA do not require shareholders’ specifjc approval for each issue of shares for cash on a non-pre-emptive basis to the extent that under section 570 of the 2006 Act the provisions of section 561 are disapplied generally. If given, this authority will expire on the date of the next AGM of the Company. The Principles also request that in any rolling three-year period a company does not make non-pre-emptive issues for cash or of equity securities exceeding 7.5 per cent of the company’s issued share capital without prior consultation with shareholders. The percentages

• f shares issued by the Company on a non-pre-emptive basis in

2013 and in the period 2011 to 2013 pursuant to employee share schemes (calculated by reference to the Company’s closing issued share capital at 31 December 2013), were 1.71 per cent and 2.52 per cent respectively. Save for issues of shares in respect of various employee share schemes, the directors have no current plans to make use of the renewed authorities sought by Resolutions 18 and 19 although they consider their renewal appropriate in

• rder to retain maximum fmexibility to take advantage of

business opportunities as they arise.

REPURCHASE OF SHARES

The Company has authority under a shareholders’ resolution passed at the 2013 AGM to repurchase up to 12,709,595 of the Company’s ordinary shares in the market. The shares may be purchased at a price ranging between the nominal value for each share and an amount equal to the higher of (i) 105 per cent of the average of the middle-market price

• f an ordinary share for the fjve business days immediately

preceding the date on which the Company agrees to buy the shares concerned and (ii) the higher of the price of the last independent trade and the highest independent current bid on the London Stock Exchange at the time the purchase is carried out. This authority expires at the conclusion of the forthcoming AGM on 13 May 2014. No shares have been repurchased by the Company under the authority granted at the 2013 AGM. Resolution 20 set out in the Notice of AGM will be proposed as a special resolution in order to renew this authority. Although the directors have no immediate plans to do so, they believe it is prudent to seek general authority from shareholders to be able to act if circumstances were to arise in which they considered such purchases to be desirable. This power will only be exercised if and when, in the light

• f market conditions prevailing at that time, the directors

believe that such purchases would increase earnings per share and would be for the benefjt of shareholders generally. Any shares purchased under this authority will be cancelled (unless the directors determine that they are to be held as treasury shares) and the number of shares in issue will be reduced accordingly. Whilst the Company does not presently hold shares in treasury, the Treasury Shares Regulations allow shares purchased by the Company out of distributable profjts to be held as treasury shares, which may then be cancelled, sold for cash or used to meet the Company’s obligations under its employee share schemes. The authority sought by this resolution is intended to apply equally to shares to be held by the Company as treasury shares in accordance with the Treasury Shares Regulations.

SHAREHOLDERS’ RIGHTS General

The rights attaching to the ordinary shares are set out in the 2006 Act and the Company’s Articles of Association. A copy

• f the Articles can be obtained on request from the Company
• Secretary. The Articles may only be changed by special

resolution of shareholders which requires, on a vote on a show of hands, at least three-quarters of the shareholders

• r proxies present at the meeting to be in favour of the

resolution or, on a poll, at least three-quarters in nominal value of the votes cast by shareholders or their proxies to be in favour of the resolution. A shareholder whose name appears on the register of members may choose whether those shares are evidenced by share certifjcates (certifjcated form) or held in electronic form (uncertifjcated) in CREST.

58 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REPORT

Voting

Subject to the restrictions set out below, a shareholder is entitled to attend (or appoint another person as his representative (a “proxy”) to attend) and to exercise all

• r any of his rights to speak, ask questions and vote at any

general meeting of the Company. A shareholder may also appoint more than one proxy, provided that each proxy is appointed to exercise the rights attached to a different share

• r shares held by that shareholder. A proxy need not be a

shareholder of the Company. The right to appoint a proxy does not apply to a person who has been nominated under section 146 of the 2006 Act to enjoy information rights (a “Nominated Person”). He/she may, however, have a right under an agreement with the registered shareholder holding the shares on his/her behalf to be appointed (or to have someone else appointed) as a

• proxy. Alternatively, if a Nominated Person does not have

such a right, or does not wish to exercise it, he/she may have a right under such an agreement to give instructions to the person holding the shares as to the exercise of voting rights. In accordance with section 327 of the 2006 Act, in order to be valid, any form of proxy sent by the Company to shareholders or any proxy registered electronically in relation to any general meeting must be delivered to the Company’s registrars not later than 48 hours before the time fjxed for holding the meeting (or any adjourned meeting). In calculating the 48-hour period no account shall be taken of any part of a day that is not a working day. Full details of the deadlines for exercising voting rights in respect of the 2014 AGM are set out in the Notice of AGM. Subject to any rights or restrictions for the time being attached to any class or classes of shares and to any other provisions of the Articles of Association or statutes, on a vote on a resolution at a general meeting on a show of hands every shareholder present in person, every proxy present who has been duly appointed by one or more shareholders entitled to vote on the resolution and every authorised representative of a corporation which is a shareholder of the Company entitled to vote on the resolution, shall have one

• vote. If a proxy has been duly appointed by more than one

shareholder and has been instructed by one or more of those shareholders to vote for the resolution and by one or more

• f those shareholders to vote against it, that proxy shall have
• ne vote for and one vote against the resolution. On a poll,

every shareholder present in person or by proxy shall have

• ne vote for every share held.

A resolution put to the vote at a general meeting shall be decided on a show of hands unless the notice of the meeting specifjes that a poll will be called on such resolution or a poll is (before the resolution is put to the vote on a show

• f hands or on the declaration of the results of the show of

hands) directed by the Chairman or demanded in accordance with the Articles of Association. If a person fails to give the Company any information required by a notice served on him by the Company under section 793 of the 2006 Act (which confers upon public companies the power to require information to be supplied in respect of a person’s interests in the Company’s shares) then the Company may, no sooner than 21 days later, and after warning that person, serve a disenfranchisement notice upon the shareholder registered as the holder of the shares in respect of which the section 793 notice was given. Unless the information required by the section 793 notice is given within 14 days, such holder will not be entitled to receive notice of any general meeting or attend any such meeting

• f the Company and shall not be entitled to exercise, either

personally or by proxy, the votes attaching to such shares in respect of which the disenfranchisement notice has been given unless and until the information required by the section 793 notice has been provided. The Company operates a number of employee share

• schemes. Under some of these arrangements, shares are

held by trustees on behalf of employees. The employees are not entitled to exercise directly any voting or other control

• rights. The trustees abstain from voting on these shares.

General meetings

No business may be transacted at a general meeting unless a quorum is present consisting of not less than two shareholders present in person or by proxy or by two duly authorised representatives of a corporation. Two proxies of the same shareholder or two duly authorised representatives

• f the same corporation will not constitute a quorum.

An AGM must be called on at least 21 days’ clear notice. All other general meetings are also required to be held on at least 21 days’ clear notice unless the Company offers shareholders an electronic voting facility and a special resolution reducing the period of notice to not less than 14 days has been passed. The directors are proposing Resolution 22 set out in the Notice of AGM to renew the authority obtained at last year’s AGM to reduce the notice period for general meetings (other than AGMs) to at least 14 days. It is intended that this shorter notice period will

• nly be used for non-routine business and where merited

in the interests of shareholders as a whole. The business of an AGM is to receive and consider the accounts and balance sheets and the reports of the directors and auditors, to elect directors in place of those retiring, to elect auditors and fjx their remuneration and to declare a dividend. Providing that notice is given to the Company no later than six weeks before an AGM or no later than the date on which the notice of an AGM is given, shareholders representing at least 5 per cent of the total voting rights of all the shareholders who have a right to vote at the AGM or at least 100 shareholders who have that right and who hold shares in the Company on which there has been paid up an average sum per shareholder of at least £100, may require the

GOVERNANCE

DIRECTORS’ REPORT CONTINUED

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OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REPORT

Company to include an item in the business to be dealt with at the AGM.

Dividends

Subject to the provisions of the 2006 Act, the Company may, by ordinary resolution, declare a dividend to be paid to the shareholders but the amount of the dividend may not exceed the amount recommended by the directors. The directors may also pay interim dividends on any class of shares on any dates and in any amounts and in respect of any periods as appear to the directors to be justifjed by the distributable profjts of the Company.

Liquidation

If the Company is wound up the liquidator may, with the sanction of a special resolution of the Company, and any other sanction required by law, divide amongst the shareholders the whole or any part of the assets of the Company. He may, for such purposes, set such value as he deems fair upon any property to be divided and may determine how such division shall be carried out as between the shareholders or different classes of shareholders. The liquidator may also transfer the whole or any part of such assets to trustees to be held in trust for the benefjt of the shareholders. No shareholder can be compelled to accept any shares or other securities which would give him any liability.

MODIFICATION OF RIGHTS

If at any time the capital of the Company is divided into different classes of shares, the rights attached to any class

• r any of such rights may be modifjed, abrogated, or

varied either: (a) with the consent of the holders of 75 per cent of the issued shares of that class; or (b) with the sanction of a special resolution passed at a separate general meeting of the holders of the shares

• f the class.

The rights attached to any class of shares shall not (unless

• therwise provided by the terms of issue of the shares of

that class or by the terms upon which such shares are for the time being held) be deemed to be modifjed or varied by the creation or issue of further shares ranking pari passu therewith. The Company may by ordinary resolution, convert any paid- up shares into stock, and reconvert any stock into paid-up shares of any denomination.

TRANSFER OF SHARES

There are no specifjc restrictions on the transfer of securities in the Company, or on the size of a shareholder’s holding, which are both governed by the Articles of Association and prevailing legislation. In accordance with the Listing, Prospectus, and Disclosure and Transparency Rules of the FCA, certain employees are required to seek the approval of the Company to deal in its shares. The Company is not aware of any agreements between its shareholders that may result in restrictions on the transfer

• f securities or on voting rights.

Subject to the 2006 Act, the directors may refuse to register any transfer of any share which is not fully paid (whether certifjcated or uncertifjcated), provided that the refusal does not prevent dealing in shares in the Company from taking place on an open and proper basis. The directors may also decline to register the transfer of any certifjcated share unless the instrument of transfer is duly stamped (if stampable) and accompanied by the certifjcate

• f the shares to which it relates and such other evidence as

the directors may reasonably require to show the right of the transferor to make the transfer. Transfers of uncertifjcated shares must be conducted through CREST and the directors can refuse to register transfers in accordance with the regulations governing the operation of CREST. All share transfers must be registered as soon as practicable.

SUBSTANTIAL SHAREHOLDINGS

As at 31 December 2013 the Company had been notifjed of the following interests in the voting rights over shares, as shown in the table below:

Name of holder Number of

• rdinary shares

% of total voting rights Nature of holding

Mondrian Investment Partners Ltd 9,272,292 7.18 Indirect Henderson Global Investors Ltd 8,541,009 6.62 Indirect JPMorgan Asset Management Holdings Inc 6,592,992 5.11 Indirect Standard Life Investments Ltd 5,988,205 4.64 Direct and indirect Norges Bank 4,915,250 3.81 Direct Prudential plc group of companies 4,354,580 3.37 Direct Between the year end and the date of this report, the Company has been notifjed that the interests in the voting rights over shares of Standard Life Investments Ltd and JPMorgan Asset Management Holdings Inc have changed as follows:

• Standard Life Investments Ltd — increase to 6,715,225

shares (5.20 per cent)

• JPMorgan Asset Management Holdings Inc — decrease to

below minimum threshold.

60 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REPORT

APPOINTMENT AND REPLACEMENT OF DIRECTORS

The Board must comprise of not less than three and no more than twelve directors. Directors may be appointed by shareholders (by ordinary resolution) or by the Board. Under the Company’s Articles of Association, any director appointed by the Board since the last AGM may only hold

• ffjce until the date of the next AGM, at which time that

director must stand for election by shareholders. The Articles also require one-third of the directors to retire by rotation at each AGM. Any director who has not retired by rotation must retire at the third AGM after his or her last appointment or re-appointment. However, in accordance with the Corporate Governance Code, which requires all directors

• f FTSE 350 companies to be subject to annual re-election

by shareholders, the Board has again decided that all the directors will be subject to re-election at this year’s AGM. No person other than a director retiring at a general meeting shall, unless recommended by the directors for election, be eligible for election to the offjce of director unless, not less than seven nor more than 21 days beforehand, the Company has been given notice, executed by a shareholder eligible to vote at the meeting, of his intention to propose such person for election together with a notice executed by that person

• f his willingness to be elected.

The Company may, by ordinary resolution, of which special notice has been given in accordance with section 312 of the 2006 Act, remove any director before the expiration of his period of offjce and may, by ordinary resolution, appoint another person in his stead.

DIRECTORS AND DIRECTORS’ INTERESTS

The following have served as directors during the year: Lord Blackwell* (Group Chairman) Adrian Ringrose (Chief Executive) Les Cullen* (Senior Independent Director from 13 May 2013) Steven Dance Anne Fahy*1 Tim Haywood Keith Ludeman* Bruce Melizan David Paterson2 Dougie Sutherland David Thorpe* David Trapnell*3 (Senior Independent Director to 13 May 2013)

*Non-executive director

1Appointed to the Board on 1 January 2013 2Retired from the Board on 30 April 2013 3Retired from the Board on 13 May 2013

The biographical details of the directors of the Company are given on pages 52 to 55. The directors’ benefjcial interests in, and options to acquire,

• rdinary shares in the Company, are set out in the Directors’

Remuneration Report on pages 91 to 95 of this Annual Report and Financial Statements. The directors do not have any interest in any other Group company, other than as directors. No director has, or has had, a material interest, directly or indirectly, at any time during the year under review in any contract signifjcant to the Company’s business.

DIRECTORS’ INDEMNITIES AND INSURANCE

As permitted by the Company’s Articles of Association, qualifying third-party indemnities have been in place throughout the period under review and remain in force at the date of this report in respect of liabilities suffered or incurred by each director. The Company also undertakes to loan such funds to a director as it, in its reasonable discretion, considers appropriate for the director to meet expenditure incurred by him in defending any criminal

• r civil proceeding or in connection with any application

under section 661(3) or 1157 of the 2006 Act on terms which require repayment by the director of amounts so advanced upon conviction of fjnal judgment being given against

• him. The deeds of indemnity are available for inspection

by shareholders at the Company’s registered offjce. The Company also maintains an appropriate level of directors’ and offjcers’ insurance in respect of legal actions against the

• directors. Neither the qualifying third-party indemnities nor

the insurance provide cover where the director has acted fraudulently or dishonestly. On 26 September 2007 the rules of the Interserve Pension Scheme were amended in order to provide the directors of Interserve Trustees Limited, the corporate trustee of the Interserve Pension Scheme, with a qualifying pension scheme indemnity to the extent that insurance has not been taken out by the trustee to cover its liabilities, or such liabilities cannot be paid from the proceeds of any insurance taken out by the

• trustee. That qualifying pension scheme indemnity remains in

force at the date of this report and is available for inspection by shareholders at the Company’s registered offjce. In January 2011 an indemnity was given to the trustees of the Douglas Group Compass Pension Plan for any claim, costs, loss, damages and expenses which may be made against them or which they may pay or incur (save as a consequence of breach of trust committed knowingly and intentionally or as a result of negligence) in connection with the administration of the Plan and the winding-up of the

• Plan. Two of the trustees were also directors of one or more

Group subsidiary companies. This Plan was formally wound up on 7 January 2011 but the indemnity remains in force. In January 2012 an indemnity was given to the trustees of the Interserve Retirement Plan against all and any claims, costs, damages and expenses which may be made against them or which they may pay or incur in connection with their administration of the Plan and the winding-up of the Plan (other than liabilities arising as a consequence of breach

• f trust committed knowingly and intentionally). One of

the trustees was also a director of various Group subsidiary

• companies. This Plan was formally wound up 31 January 2012

but the indemnity remains in force.

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EMPLOYEES

The average number of persons, including directors, employed by the Group and their remuneration, is set out in note 6 to the fjnancial statements. A breakdown of employee diversity, as required by the 2006 Act, can be viewed on page 43 of the Sustainability Review section of the Strategic Report. The Group’s statement with regard to its employees, including its disclosure on employee consultation, equal opportunities and diversity, is set out within the Sustainability Review section of the Strategic Report on pages 42 and 43.

SIGNIFICANT AGREEMENTS − CHANGE OF CONTROL PROVISIONS

The following signifjcant agreements contain provisions entitling the counterparties to exercise termination rights in the event of a change of control in the Company:

• Under the terms of the banking facility agreements

detailed on page 50 of the Strategic Report, if any person, or group of persons acting in concert, gains control of the Company any lender (i) is no longer obliged to fund any loan, save for a rollover loan; and (ii) may, by not less than 15 days’ notice, cancel its commitment under the facility and declare its participation in all

• utstanding loans, together with accrued interest and all
• ther amounts payable under the facility, immediately

due and repayable.

• The Group’s share schemes also contain provisions

relating to the vesting and exercising of awards/options in the event of a change of control of the Group. These are set out on page 83 the Directors’ Remuneration Report. There are no provisions in the directors’ service agreements nor in any employees’ contracts providing for compensation for loss

• f offjce or employment occurring because of a takeover.

POLITICAL DONATIONS

No political donations were made during the period (2012: £nil). It is not the Company’s policy to make cash donations to political parties. This policy is strictly adhered to and there is no intention to change it. However, the defjnitions used in the 2006 Act for “political donation” and “political expenditure” remain very broad, which may have the effect

• f covering a number of normal business activities that

would not be considered political donations or political expenditure in the usual sense. These could include support for bodies engaged in law reform or governmental policy review or involvement in seminars and functions that may be attended by politicians. To avoid any possibility

• f inadvertently contravening the 2006 Act, the directors

are again seeking shareholder authority at the AGM (Resolution 17) to ensure that the Company acts within the provisions of current UK law when carrying out its normal business activities.

BRANCHES

The Company, through various subsidiaries, has established branches in a number of different countries in which the Group operates.

GREENHOUSE GAS EMISSIONS

In this section we report on greenhouse gas (“GHG”) emissions in accordance with the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013.

Organisation boundary

We report using a fjnancial control approach to defjne our

• rganisational boundary.

A range of approaches can be taken to determine the boundaries of an organisation for the purposes of GHG reporting including ‘fjnancial control’, ‘operational control’

• r ‘equity share’.

The methodology used to calculate our emissions is based upon the “Environmental Reporting Guidelines: including mandatory greenhouse gas emissions reporting guidance” (June 2013) issued by DEFRA, which make it clear that, in most cases, whether an operation is controlled by the

• rganisation or not does not vary based on whether the

fjnancial control or operational control approach is used. On this basis of the above guidelines we are including emissions associated with our owned and controlled businesses but not the emissions from our associate

• companies. GHG emissions from our leased vehicles when

used on company business are not reported. Were we to have adopted the operation control approach, the GHG emissions associated with the use of those same vehicles for both private and company business would have been

• reported. We consider neither method to be appropriate

and have therefore included the GHG emissions from leased vehicles used on company business within our overall GHG emissions data on pages 37 and 39 of our Sustainability Review.

Summary table

Global GHG emissions data for 1 January 2013 to 31 December 2013 is as follows:

2013 Tonnes CO2e

Emissions from: Combustion of fuel and operation of facilities 36,562 Electricity, heat, steam and cooling purchased for own use 10,088 Intensity measurement: Emissions reported above normalised to tonnes CO2e per £m revenue 21.28 tonnes CO2e/£m As this is the fjrst year of reporting, there are no comparable fjgures for 2012.

62 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REPORT

Methodology

We have reported on all of the emissions sources required under the Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013. These sources fall within our consolidated fjnancial statements. We have used the DEFRA Environmental Reporting Guidelines and the 2013 UK Government GHG Conversion Factors for Company Reporting to calculate our emissions based on data gathered from each of our business units.

Boundaries

Company Included Division

Interserve Plc Yes Group Services Advantage Healthcare Group Ltd Yes Support Services Adyard Abu Dhabi LLC Yes Support Services First Security (Guards) Ltd Yes Support Services Interserve Environmental Services Ltd Yes Support Services Interserve (Facilities Management) Ltd Yes Support Services Interserve (Facilities Services-Slough) Ltd Yes Support Services Interservefm Ltd Yes Support Services Interserve Industrial Services Ltd Yes Support Services Interserve Technical Services Ltd Yes Support Services Landmarc Support Services Ltd Yes Support Services MacLellan International Ltd Yes Support Services SSD UK Ltd Yes Support Services TASS (Europe) Ltd Yes Support Services The Oman Construction Company Yes Support Services Interserve Construction Ltd Yes Construction Interserve Engineering Services Ltd Yes Construction Rapid Metal Developments (Australia) Pty Ltd Yes Equipment Services Rapid Metal Developments (NZ) Ltd Yes Equipment Services RMD Kwikform (Al Maha) Qatar WLL Yes Equipment Services RMD Kwikform Almoayed Bahrain WLL Yes Equipment Services RMD Kwikform Chile SA Yes Equipment Services RMD Kwikform Guam LLC Yes Equipment Services RMD Kwikform Holdings Ltd Yes Equipment Services RMD Kwikform Hong Kong Ltd Yes Equipment Services RMD Kwikform Ibérica SA Yes Equipment Services RMD Kwikform India Private Ltd Yes Equipment Services RMD Kwikform Ireland Ltd Yes Equipment Services RMD Kwikform Ltd Yes Equipment Services RMD Kwikform Middle East LLC Yes Equipment Services RMD Kwikform North America Inc Yes Equipment Services

Company Included Division

RMD Kwikform Oman LLC Yes Equipment Services RMD Kwikform Panama SA Yes Equipment Services RMD Kwikform Philippines Inc Yes Equipment Services RMD Kwikform Saudi Arabia LLC Yes Equipment Services RMD Kwikform Singapore Pte Ltd Yes Equipment Services RMD Kwikform (South Africa) (Proprietary) Ltd Yes Equipment Services Interserve Investments Ltd Yes Investments Interserve Working Futures Ltd Yes Investments Interserve Finance Ltd Yes Group Services Interserve Group Holdings Ltd Yes Group Services Interserve Holdings Ltd Yes Group Services Interserve Insurance Company Ltd Yes Group Services Khansaheb Group LLC No Associate Madina Group WLL No Associate Occupational Training Institute LLC No Associate Qatar Inspection Services WLL No Associate Qatar International Safety Centre WLL No Associate Severn Glocon (Qatar) WLL No Associate Douglas OHI LLC No Associate Gulf Contracting Co WLL No Associate How United Services WLL No Associate Khansaheb Civil Engineering LLC No Associate Khansaheb Hussain LLC No Associate PriDE (SERP) Ltd 50% Direct impact in Support Services Rehab Jobfjt LLP 49% Direct impact in Investments KMI Water Joint Venture 33% Direct impact in Construction KMI Plus Water Joint Venture 31% Direct impact in Construction Acciona Agua SUA Joint Venture 47% Direct impact in Construction

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Data sources

Element Data source Comment

The combustion of fuel Stationary combustion Natural gas used in heating systems in buildings Heating oil used in heating systems in buildings Gas oil used for emergency (standby) generation at fjxed sites Gas oil used in generators on temporary construction sites We purchase the fuel and are responsible for the activities from which these emissions arise Mobile combustions Fuel used in cars, vans and other road going vehicles Fuel used in other plant including forklift trucks and construction plant We purchase the fuel which is used in the vehicles and plant as part of

• ur activities

The operation of any facility Process emissions We have no process operations which generate direct emissions Fugitive emissions Assessment of fugitive emissions from refrigeration (air conditioning) equipment installed at our sites De minimis, less than 1% of reportable emissions Purchase of electricity, heat, steam or cooling Electricity Electricity purchased for use in offjces, facilities and temporary sites We purchase the electricity and are responsible for the activities which use it Heat, steam & cooling We do not purchase heating, steam or cooling Further disclosures relating to the Group’s greenhouse gas emissions and the actions being taken to reduce them are set out within the Sustainability Review section of the Strategic Report on pages 37 to 39.

FINANCIAL INSTRUMENTS AND RISK MANAGEMENT

The Group’s exposure to and management of capital, liquidity, credit, interest rate and foreign currency risk are set out within the Financial Review section of the Strategic Report on pages 44 to 51.

AUDITORS

Resolutions to appoint auditors and to authorise the directors to determine their remuneration will be proposed at the forthcoming AGM.

Statement of disclosure of information to auditors

The directors in offjce at the date of approval of this report confjrm that: (a) so far as they are each aware, there is no relevant audit information of which the Company’s auditors are unaware; and (b) they have each made such enquiries of their fellow directors and of the Company’s auditors and have each taken such

• ther steps as were required by their duty as a director of the Company to exercise due care, skill and diligence in order

to make themselves aware of any relevant audit information and to establish that the Company’s auditors are aware of that information. This confjrmation is given and should be interpreted in accordance with the provisions of section 418 of the 2006 Act.

64 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REPORT

ANNUAL GENERAL MEETING RESOLUTIONS

The resolutions to be proposed at the AGM to be held on 13 May 2014, together with the explanatory notes, appear in the separate Notice of Annual General Meeting accompanying this Annual Report. The Notice is also available on our website at www.interserve.com. Interserve House Ruscombe Park Twyford Reading Berkshire RG10 9JU Approved by the Board of directors and signed on behalf of the Board T Bradbury Company Secretary 28 February 2014

CAUTIONARY STATEMENT

The Directors’ Report (the “Report”) set out above (including the sections of the Annual Report and Accounts incorporated by reference) is the “management report” for the purposes of paragraph 4.1.8R of the FCA’s Disclosure and Transparency Rules. The Report has been prepared solely for existing members of the Company in compliance with UK company law and the Listing, Prospectus, and Disclosure and Transparency Rules of the FCA. The Company, the directors and employees accept no responsibility to any other person for anything contained in the Report. The directors’ liability for the Report is limited, as provided in the 2006 Act. The Company’s auditors report to the Board whether, in their opinion, the information given in the Report is consistent with the fjnancial statements, but the Report is not audited. Statements made in this Report refmect the knowledge and information available at the time of its preparation. The Report contains forward-looking statements in respect of the Group’s operations, performance, prospects and fjnancial condition. By their nature, these statements involve

• uncertainty. In particular, outcomes often differ from plans or expectations expressed through forward-looking statements,

and such differences may be signifjcant. Assurance cannot be given that any particular expectation will be met. No responsibility is accepted to update or revise any forward-looking statement, resulting from new information, future events

• r otherwise. Liability arising from anything in this Annual Report and Financial Statements shall be governed by English law.

Nothing in this Annual Report and Financial Statements should be construed as a profjt forecast.

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DIRECTORS’ REPORT CONTINUED

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GOVERNANCE

CORPORATE GOVERNANCE

Dear Shareholder Our role as a Board is to provide entrepreneurial leadership within an appropriate governance framework, set the standards

• f behaviour, values and ethics by which the business is expected to operate and to call to account those who do not abide

by those principles. Our continued success depends upon delivering outstanding service and better solutions to our customers in order for us to pursue our robust strategy and deliver continued growth and shareholder value. The Board is confjdent of this strategy and is continually testing our current and proposed activities against this framework. We aim to set stretching fjnancial objectives while maintaining our prudent risk appetite. We also recognise that our continued “licence to operate” relies as much on maintaining the trust and confjdence of our wider stakeholder base as it does on managing the fjnancial risks. During the year we launched SustainAbilities, our vision for creating a sustainable business, re-visited and revised our values and provided considerable amounts of training to and communication with our employees in these areas. To perform our role effectively we believe we need a strong and diverse Board, with an open culture of debate and challenge, with all directors appointed on merit, for the experience and insights they can bring to the Board and their commitment to

• ur values.

Our succession planning has seen a number of changes to the Board composition and roles during the period under review. We believe that our particular mix of executive and non-executive directors works well for the business, ensuring we have knowledge and accountability around the Board table as well as a range of external experiences. I continue to be satisfjed through my observations of the manner in which the Board functions that the strength and independence of our non- executives and our open style of debate ensures the continuance of an effective governance check within the Board. In making new appointments to the Board we seek to embrace diversity in all its forms, taking into account the additional range of insights and perspectives that new and diverse candidates can contribute to an effective, cohesive and challenging mix of individuals around the Board table. I was therefore delighted when in January we appointed Anne Fahy to our Board, bringing with her a wide range of international experience in a major industrial company. We will continue to monitor our success in developing the diversity of the Board as part of the annual evaluation of Board effectiveness. As was the case last year, all directors wishing to remain in offjce will seek re-election at the AGM. Lord Blackwell Chairman LORD BLACKWELL CHAIRMAN

66 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE CORPORATE GOVERNANCE

GOVERNANCE

CORPORATE GOVERNANCE CONTINUED

COMPLIANCE WITH THE CODE

The Financial Conduct Authority requires the Company to disclose how it has applied the principles of the UK Corporate Governance Code published in September 2012 (the “Code”) and whether there has been compliance with its provisions throughout the fjnancial year. In the case of non-compliance, the Company must specify those provisions with which it has not complied and give reasons for this. The Code may be found on the Financial Reporting Council’s website (www.frc.org.uk). The directors consider that the Company has complied fully with the provisions of the Code applicable to it throughout the accounting period ended 31 December 2013 with the following exception:

• Provision B.1.2 of the Code requires at least half the

board, excluding the Chairman, to comprise non-executive directors determined by the board to be independent. As at year end, the Board comprised fjve executive and four non-executive directors plus the Chairman. The Board believes that the diversity of skills and experience which the executive directors bring to the Board (particularly in relation to their own operating divisions) is more valuable than maintaining parity between the number of executive and non-executive directors. Furthermore, the Board considers its non-executive directors to be suffjciently independent and of such calibre and number that their views may be expected to be of suffjcient weight that no individual or small group can dominate the Board’s decision-making processes.

THE BOARD Operation of the Board

The Board has a formal schedule of matters reserved for its decision, whilst day-to-day operational decisions are managed by the Executive Board, as referred to on page 68. In order to facilitate the effjcient use of its time the Board has delegated certain of its powers to Board committees, details of which are set out later in this report. From time to time the Board also establishes certain other committees to deal with a specifjc issue which the Board has approved. Key matters dealt with by the Board during the course of the year, in addition to ongoing monitoring of the operational and fjnancial performance of the Group, were:

• setting the health, safety and environmental targets for

the Group;

• reviewing the Group’s strategic direction, governance,

ethics, values and reputation risk management;

• reviewing IT in the Support Services business and its use

more generally to obtain competitive advantage;

• the assessment of a number of potential acquisitions

including the proposed acquisition of the facilities services business of Rentokil Initial plc;

• reviewing the promotion of the Company’s brand;
• setting the Group’s annual budget and plan;
• approval of the annual and half-year report;
• declaration of the interim and recommendation of

the fjnal dividend;

• ensuring the maintenance of a sound system of internal

controls and an effective risk management and assurance strategy;

• monitoring the effectiveness of the Group’s Health and

Safety Policy;

• control over major contracts (including joint ventures)

and capital expenditure; and

• monitoring progress with the Group’s SustainAbilities Plan.

Board composition

The role of the Group Chairman and Chief Executive are split and clearly defjned in written terms of reference.

The role of the Chairman

The Group Chairman is responsible for the leadership of the Board and creating the conditions for overall Board and individual director effectiveness, both inside and outside the boardroom. The Group Chairman regularly considers succession planning and the Board’s composition with the Nomination Committee and ensures effective communication with shareholders and other stakeholders. The Group Chairman, assisted by the Company Secretary, sets the agenda for Board meetings and ensures that Board members receive timely information and are briefed on issues arising at Board meetings to assist them in making an effective contribution.

The role of the Chief Executive

The Chief Executive bears primary responsibility for the management of the Group and in leading the formulation

• f and, once set by the Board, implementing strategy.

The Chief Executive chairs the Executive Board and Risk Committee, leads the executive management team and investor communications and is responsible for social and ethical matters within the Group.

The role of the Company Secretary

The Company Secretary is responsible for distributing Board papers and other information suffjciently far in advance of each meeting for the directors to be properly briefed, presenting certain papers to the Board and its committees, advising on Board procedures and ensuring the Board follows them. The Board papers include information from management on fjnancial, business and corporate issues. Matters requiring Board and committee approval are generally the subject of a written proposal and circulated as part of the Board papers. The Company Secretary plays a key role in the good governance

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• f the Company and in particular by supporting the Group

Chairman on all Board matters pertaining to governance.

Non-executive director independence and appointments

The Group Chairman and the non-executive directors are considered by the Board to be independent in character and judgement and free from any relationships or circumstances which are likely to affect, or could appear to affect, their judgement. The non-executive directors have complementary skills, experience and qualifjcations in a wide range of economic sectors and so are able to bring independent judgement to bear on matters for consideration. On 1 January 2013 Anne Fahy was appointed as a non- executive director. At the conclusion of the AGM on 13 May 2013 David Trapnell retired from the Board, Les Cullen succeeded him as Senior Independent Director and Anne Fahy replaced Les Cullen as chair

• f the Audit Committee.

The Senior Independent Director is available to shareholders should they have any concerns which contact through other channels has failed to resolve or for which such contact may be inappropriate. He also provides a sounding board for the Chairman and serves as an intermediary for the other directors when necessary. As at 31 December 2013 the Board comprised ten members: the Group Chairman, fjve executive and four non-executive directors.

Meetings

The Board normally meets monthly throughout the year and

• n an ad hoc basis to consider any matters which are time-
• critical. Attendance at Board and committee meetings is set
• ut in the table below.

Board Audit Remuneration Nomination

Number of Meetings 13 5 6 5 Lord Blackwell 13 6 5 L G Cullen 13 5 6 5 S L Dance 13 A K Fahy 13 5 6 5 T P Haywood 13 K L Ludeman 13 5 6 5 B A Melizan 13 D J Paterson1 4 A M Ringrose 13 5 D I Sutherland 13 D A Thorpe 12 5 6 5 D A Trapnell2 5 2 2 1

1Retired on 30 April 2013 2Retired on 13 May 2013

The Board also holds a strategy day in January each year to review the strategic direction of the Group. The Group Chairman held one formal session with the non-executive directors without any executive directors being present and a number of informal discussions both with and without the Chief Executive being present. The non-executive directors also met once during the year, under the chairmanship of the Senior Independent Director, without either the Group Chairman or the executive directors being present.

Board induction, time commitment and development

On appointment, new directors take part in an induction programme arranged by the Company Secretary, which includes training on the duties of a listed company director by the Group’s corporate lawyers, meetings with management and other corporate advisers, and operational site visits. An ongoing programme of site visits, staff meetings and business presentations provides additional opportunities for the Chairman and non-executive directors to visit various

• perations of the Group and to receive insight and feedback

from employees. During the year under review the non-executive directors have attended a number of seminars and/or other non- executive forums relevant to their roles. Development below Board level has been through the Trusted Partner Programme, Ingenuity at Work and Coaching

• Programmes. All are Group-wide leadership development

programmes, offered at different management levels, established to support the ambitious vision of the business. The programmes include topics associated with the new corporate vision, values and SustainAbilities Plan. To help achieve the vision, these programmes aim to enhance leadership capability as well as strategic relationships across the different businesses within the Group.

Performance evaluation

During the course of the year the performance of the directors was reviewed by the Group Chairman and the Chief Executive and, in the case of the Chief Executive, by the Group Chairman, having consulted with other directors. The Group Chairman’s performance was reviewed by the Senior Independent Director who held separate meetings with each

• f the directors and the Company Secretary.

The overall time commitment of the non-executive directors in the attendance of Board meetings/visits was in the order

• f 15 days in addition to the time taken to read Board

papers and attendance at four meetings held by the Group Chairman.

68 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE CORPORATE GOVERNANCE

The Board evaluation is currently in progress, the Board having appointed Independent Audit to undertake this

• role. Independent Audit has no other connection with the
• Company. To date an Executive Board and a Board meeting

have been observed and one-to-one interviews undertaken with all members of the Board, the Company Secretary and certain other functional heads. The outcome of this review is due to be presented to the Board in April. The Audit, Remuneration and Nomination committees also conducted a review of their terms of reference and their performance against them.

Information and support

Individual directors may, after consultation with the Group Chairman, take independent legal advice in furtherance of their duties at the Company’s expense up to a limit of £10,000 in relation to any one event. In the case of the Group Chairman he must consult with the Senior Independent Director. All directors have access to the advice and services of the Company Secretary, whose appointment or removal is a matter reserved for the approval of the Board or any duly delegated committee thereof.

Election and re-election

All directors will submit themselves for re-election at the AGM. Biographical details for each of the directors standing for election or re-election are set out on pages 52 to 55.

EXECUTIVE BOARD

The Executive Board, which, during the year, comprised the executive directors together with Trevor Bradbury (Group Company Secretary), George Franks (Managing Director

• f Interserve International), Robin O’Kelly (Director of

Communications), Ian Renhard (Managing Director of UK Construction) and Catherine Ward (Group Director of Human Resources), is chaired by the Chief Executive. The Executive Board, which met 10 times during the course of the year, is responsible for the operational management and delivery against budget and forecast

• f the Group, implementing resolutions of the Board,

formulation of strategy, annual budgets and other proposals for consideration by the Board, the identifjcation and evaluation for consideration by the Board of risks faced by the Group and for designing, operating and monitoring a suitable system of internal control embracing the policies adopted by the Board. It is also responsible for devising and, once approved by the Board, implementing suitable policies and monitoring procedures for health and safety, environmental, social and ethical, treasury, human resources and information technology.

AUDIT COMMITTEE

Details of the Audit Committee are included in the Audit Committee Report on pages 72 to 76 and are incorporated into this Corporate Governance report by reference.

NOMINATION COMMITTEE

The Nomination Committee is chaired by the Group Chairman and the majority of the members are independent non- executive directors. External consultants are used for new

• appointments. The committee keeps the Board structure,

size and composition, balance of skills and knowledge and experience (both executive and non-executive) under review and makes recommendations for any changes to the Board. The committee’s terms of reference set out clearly its authority and duties, and are available on the Company’s website at www.interserve.com and on request. Business conducted during the year included recommendations to the Board for the re-election of retiring directors at the AGM, reviews of Board structure and composition and senior management succession and development up to and including those at Board level, and Board succession planning. The effectiveness of the committee and its terms of reference were also reviewed. The Company’s policy relating to the terms of appointment and remuneration of the executive and non-executive directors is detailed in the Directors’ Remuneration Report on pages 77 to 97. The terms and conditions of appointment of all directors and the Group Chairman are available for inspection at the Company’s registered offjce during normal business hours. The letters of appointment of the non-executive directors and the Group Chairman specify the anticipated level of time commitment. Non-executive directors and the Group Chairman are required to confjrm, on appointment, that they have suffjcient time to meet what is expected of them and to seek the committee chairman’s agreement, or in the case

• f the Group Chairman, the Senior Independent Director’s

agreement, before accepting additional commitments that might impact upon the time they are able to devote to their role as a non-executive director of the Company. The Group’s Diversity Policy states that diversity in all its forms is fundamental to the Group’s business. It is available

• n the website at www.interserve.com/about-us/policies.

The goal is to recruit, motivate, develop and retain

• utstanding people that refmect the diversity of the

communities in which the Group operates. The Board monitors the extent to which the Group is meeting this objective and is committed to taking action where necessary or helpful to promote equal opportunity. Good evidence of our achievements in this area was the Investors in Diversity accreditation by the National Centre for Diversity given to our Construction business in 2012, the fjrst construction company to be so recognised. We have increased the diversity of the Board and would expect the policy to lead to greater diversity on the Board and divisional boards over time.

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We will monitor our success in developing the diversity of the Board as part of our annual evaluation of Board effectiveness.

REMUNERATION COMMITTEE

The Remuneration Committee, composed entirely of independent non-executive directors, is chaired by David Thorpe. The names of the committee members are set out in the table on page 67. The responsibilities

• f the committee, together with an explanation of the

work undertaken and how it applies the directors’ remuneration principles of the Code, are set out in more detail in the Directors’ Remuneration Report on pages 77 to 97 and are incorporated by reference into this Corporate Governance report.

OTHER BOARD COMMITTEES

The Confmicts Committee comprises the Group Chairman

• r, in the event that he is interested in the matter to be

considered, the Senior Independent Director, and the Company Secretary. The General Purposes Committee comprises any two executive directors (one of whom must be the Chief Executive or, in his absence, the Group Finance Director). The Inside Information Committee comprises the Group Chairman, Chief Executive and Group Finance Director. The PFI Committee comprises any two or more directors. Each committee has written terms of reference and reports

• n the business conducted to the following Board meeting.

Committee meetings held during the year are as follows:

Committee Number of meetings

Confmicts 1 General Purposes 38 Inside Information – PFI 1

RISK COMMITTEE

The Board has overall responsibility for internal control, including risk management and the ongoing review of their effectiveness, and sets appropriate policies having regard to the objectives of the Group. It formally reviews the Group’s register of risks and mitigation plans twice a year and discusses any signifjcant developments in risk exposure as and when appropriate. As discussed on page 68, the Executive Board has a key role in risk management. In order to assist it with discharging this responsibility the Executive Board constituted a Risk Committee. The committee, which met four times during the year, comprises the Chief Executive, Group Finance Director, Group Health, Safety and Environmental Manager, Group Insurance Manager, the Group Company Secretary (who is its secretary), the Group General Counsel and a representative from each of the Group’s operating divisions. The internal audit partner has a standing invitation to attend. The committee has written terms of reference and provides copies of its meeting minutes to the Board. The business covered during the year included: reviews of the Group’s prime risk areas and of contract risk allocation and control; reputation management; business continuity planning and IT disaster recovery; information security risk assessment; regular reviews of the risks presented by forthcoming legislation; and updates on current insurance, internal audit, health and safety and IT developments.

FINANCIAL AND BUSINESS DISCLOSURES

In order to present a balanced assessment of the Company’s position and prospects, the Annual Report contains a Directors’ Responsibility Statement on page 98, an Independent Auditors’ Report about their reporting responsibilities on pages 99 to 103 and a going concern statement on page 50. An explanation of the Company’s business model and strategy for delivering the Company’s objectives is set out on pages 10 and 11, and 6 and 7, respectively. The Directors’ Report contained on pages 56 to 64, of which this Corporate Governance report forms part, contains the information required by paragraph 13(2)(c),(d),(f),(h) and (i)

• f Schedule 7 to The Large and Medium-sized Companies

and Groups (Accounts and Reports) Regulations 2008 (as amended by The Companies Act 2006 (Strategic Report and Directors’ Report) Regulations 2013 and The Large and Medium-sized Companies and Groups (Accounts and Reports) (Amendment) Regulations 2013).

CONTROL PROCESSES

The Board has a continuous process for identifying, evaluating and managing the signifjcant risks the Group faces together with an ongoing process to embed internal control and risk management further into the operations of the businesses. This has been in place for the period under review and until the date of approval of this Annual Report and Financial Statements. The Audit Committee, the Risk Committee and Executive Board assist the Board in the application of these principles. The Board has documented a risk management policy setting out the prime risk areas including the threats, risk indicators, control strategy and sources of assurance. The policy is included within the Group’s internal controls

• manual. Internal controls are normally reviewed by the Board

in advance of the publication of the Group’s half-year and annual reports. The Board received and reviewed bi-annual reports from the Executive Board on the effectiveness of the Group’s system of internal control for the period under review and implements improvements from time to time in order to strengthen the control processes.

70 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE CORPORATE GOVERNANCE

Because of the limitations that are inherent in any system

• f internal control, the Group’s system of internal control

is designed to manage rather than eliminate the risk of failure to achieve business objectives, and can only provide reasonable, but not absolute, assurance against material misstatement or loss. The Group’s governance framework distinguishes between entities which are wholly controlled and joint ventures and associate companies in which the Group does not have overall control. For these joint ventures and associate companies, systems of internal control are applied as agreed between the Group and the other joint- venture parties or members of the associate company, as the case may be.

Financial reporting

Based on submissions from the trading divisions, a budget is prepared by the Group for approval by the Board before the start of each fjnancial year. Subsequently, forecasts of prospective fjnancial performance are prepared as at the end of March, May and September of each year. Budgets and forecasts include the fjnancial results, fjnancial position and cash fmows for each division and the Group Centre. The Group has risk management systems and documented accounting policies and procedures to be applied by all entities in the Group in submitting their fjnancial statements for consolidation to ensure that adequate accounting records are maintained and transactions are recorded accurately and fairly to permit the preparation of consolidated fjnancial statements in accordance with International Financial Reporting Standards. Each month, every entity within the Group submits management accounts in local currency to the Group Finance team. The consolidated management accounts include the fjnancial results, fjnancial position, cash fmows and projections and are submitted, along with analytical commentary, to the Executive Board and subsequently the Board for review. The management accounts submitted by members of the Group for June and December are used to prepare the half- yearly and annual fjnancial statements. The Group Finance team reviews the disclosures in the fjnancial statements to ensure that they comply with applicable reporting standards. The half-yearly and annual fjnancial statements are reviewed by the Executive Board, the Audit Committee and the Board before publication. The fjnancial reporting process is reviewed periodically by internal audit in accordance with the programme approved by the Audit Committee each year. A summary of the key fjnancial risks inherent in the Group’s business is given on page 50 a description of how the Group manages those risks is set out on page 35.

Operational controls

The principal features of the Group’s system of operational control are:

• An established management structure comprising

the Board with its various committees and an Executive Board.

• Executive Board and Board review of the monthly fjnance

and divisional trading reports.

• Documented delegated authority limits which are kept

under regular review. Larger value proposals and business acquisitions and disposals are controlled by the Board.

• Manuals setting out Group policy and procedures, with

which all Group companies must comply.

• The Group has certain key areas which are subject to

central management or control, which include health, safety and environmental policies, legal, insurance, tax and treasury, real estate, internal and external communication, investor relations, information technology network services and operating systems, human resources and company secretarial. These functions report to members of the Executive Board.

• One or more members of the Executive Board and, in

many cases, either the Chief Executive or the Group Finance Director, attend divisional board meetings.

• During the course of each year members of the

Executive Board or other senior operational and fjnancial management visit or review all trading companies to discuss and monitor the performance of those businesses.

• The Group has in place a whistleblowing policy which

sets out a framework for dealing with any allegations

• f fraud, fjnancial misreporting and any whistleblowing
• notifjcation. A copy of the policy is available on the

Company’s website at www.interserve.com.

OUR INVESTORS

The Company encourages two-way communication with both institutional and private investors. The Chief Executive, accompanied by the Group Finance Director, attended 30 meetings with analysts and institutional investors during the year ended 31 December 2013. In addition, the Chief Executive and the Group Finance Director attended a further 10 and 14 meetings, respectively. One-to-one meetings with shareholders focus on such matters as Group strategy, operational performance, market trends, macro-economic infmuences, fjnancial performance, merger and acquisition ambitions, peer group issues, the political environment and progress of key bids and key contract renewals.

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One-to-one and group meetings with analysts focus on the above issues and in addition the key factors which infmuence analysts’ fjnancial forecasts, with a view to ensuring market consensus is based on accurate and up-to-date information, properly interpreted. Communication with fjnancial investors involves their attendance at half-year and full-year results presentations, site visits and capital markets days. There is also a programme of regular one-to-one meetings during which all matters covered in shareholder meetings are discussed, together with specifjc issues pertinent to the Company’s debt fjnance such as covenant compliance, new facilities or renewal and the availability of ancillary services. The Company’s brokers produce periodic notes of the feedback from institutional investors which are reported to the Board to enable it to develop an understanding of the views of the major investors regarding the Company. All directors and the members of the Executive Board also have the opportunity to attend analyst briefjngs. The Group’s annual and half-yearly results, interim management statements, trading updates, presentations given to analysts and all announcements made through the RIS are published on the Company’s website at www.interserve.com. All shareholders are given at least 20 working days’ notice

• f the AGM. It is standard practice for all directors to attend

the AGM to which all shareholders are invited and at which they may put questions to the chairmen of the various committees or the Board generally. The proxy votes for and against each resolution, as well as abstentions (which may be recorded on the proxy form accompanying the notice of AGM) are counted before the AGM commences and are made available to shareholders at the close of the formal business

• f the meeting. The proxy votes are also announced through

the RIS and posted on the Company’s website shortly after the close of the meeting.

72 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE AUDIT COMMITTEE REPORT

AUDIT COMMITTEE REPORT

INTRODUCTION FROM THE AUDIT COMMITTEE CHAIR

Following on from my appointment as Chair of the Audit Committee in May 2013, I am pleased to present, on behalf of the Board, our Audit Committee Report for the fjnancial year ended 31 December 2013. I would also like to take this opportunity to thank Les Cullen for his stewardship of the committee over the past fjve and a half years. Since my appointment as a non-executive director I have been gaining a broad understanding of the Group’s operations and challenges and have spent time with both my executive and non-executive colleagues and other senior employees who have provided me with an appreciation and valuable insight into the strategy, operations and key risks of the Group. During the year the key focus of the committee has been upon the trading judgements and estimates which underpin our revenue and margin recognition on long-term construction and service contracts, impairment testing of the value of goodwill and of the fmeet within the Equipment Services business, and retirement benefjt obligations, all of which are covered in more detail within the body of the report. In addition, we have spent time understanding the extended scope of our responsibilities and how we discharge them as well as evaluating the independence and the effectiveness of both internal and external audit processes. Anne Fahy Chair of the Audit Committee ANNE FAHY CHAIR OF THE AUDIT COMMITTEE

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MEMBERSHIP

The committee is composed entirely of independent non- executive directors and is chaired by Anne Fahy. The directors who have served on the committee during the year are:

Name Date of appointment to committee Qualifjcations

A K Fahy 1 January 2013 BA (Hons) FCA L G Cullen 14 November 2005 MBA BSc (Hons) FCCA FCT K L Ludeman 1 January 2011 BA (Hons) MSc DSc (Hon) D A Thorpe 1 January 2009 CPFA D A Trapnell 11 September 2003 BSc (Hons) Anne Fahy was appointed to the committee on 1 January 2013 and succeeded Les Cullen as Chair on 13 May 2013 following a handover process. David Trapnell retired from the committee on 13 May 2013. Appointments to the committee are made by the Board,

• n the recommendation of the Nomination Committee and

in consultation with the committee chairman. Anne Fahy, Les Cullen and David Thorpe are all fjnancially qualifjed. Directors’ biographies are included on pages 52 to 55. The Company Secretary is secretary to the committee.

TERMS OF REFERENCE

The committee has written terms of reference based on the FRC’s Guidance on Audit Committees and which set out clearly its authority and duties. These are available on the Company’s website at www.interserve.com and on request. The terms of reference are considered at least annually by the committee and were updated in 2013 to incorporate recent changes. The committee may investigate any activity within its terms

• f reference and is authorised to seek any information it

requires from and require the attendance at any meeting

• f any director, offjcer or employee of the Company or of

the Group. The committee is authorised by the Board to obtain, at the Company’s expense, external legal or other professional advice on any matters within its terms of reference. A full set of committee papers is provided to every director and the chair of the committee reports to the subsequent Board meeting on the committee’s work. The Board also receives a copy of the minutes of each meeting.

ROLE AND RESPONSIBILITIES

The role and responsibilities of the committee are to:

• review with management and the external auditors the

Group’s consolidated report and accounts and the half- year report and any formal announcements relating to the Group’s fjnancial performance based on the statutory audit or half-yearly review, as the case may be, before submission to the Board;

• review the annual report and accounts and advise the

Board as to whether, taken as a whole, it is fair, balanced and understandable and provides the information necessary for shareholders to assess the Company’s performance, business model and strategy;

• make recommendations to the Board on the appointment
• f and take responsibility for reviewing the effectiveness
• f and agreement of the fees for the statutory audit and

approval of fees to be paid to the external auditors for non-audit work;

• approve the annual work programme of the internal

auditor, the fees to be paid in connection with that work and review the effectiveness of the internal audit process;

• provide an independent overview of the Group’s

systems of internal control, whistleblowing processes and outcomes, fjnancial reporting processes through the co-ordination and supervision of the scope, quality, independence and effectiveness of the internal and external audit and other enquiries; and

• review the Company’s processes for detecting fraud.

The effectiveness of the Company and the Group’s internal control and risk management systems is reviewed by the Board.

MEETINGS

The committee met fjve times during the year. The external auditors were present at three of the meetings and the Head of Internal Audit and representatives from PricewaterhouseCoopers LLP (“PwC”), the provider of the internal audit function, were present at two of the meetings. The Group Chairman, Chief Executive, Group Finance Director and Group Financial Controller attended each

• f the meetings by invitation.

The committee has taken the opportunity to seek the views

• f the external and internal auditors in private and both

the external and internal auditors have the opportunity to address the committee in private at any time should they so wish. In addition, the Chair met with both parties periodically to review audit and internal control topics on an ongoing basis.

74 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE AUDIT COMMITTEE REPORT

OVERVIEW OF ACTIVITIES

In the year the committee has:

• reviewed the 2012 annual report and fjnancial statements

and the 2013 half-year report. As part of each review the committee received a report from the external auditors

• n their audit of the annual report and review of the

half-year report, respectively;

• reviewed, prior to their consideration by the Board,

the representation letters to be given to the external auditors in respect of the annual and half-year reports;

• reviewed audit effectiveness following the audit of the

2012 annual report;

• reviewed and approved the external auditors’ terms of

engagement for the 2013 half-yearly review and for the audit of the 2013 annual report;

• received a briefjng from the Group Finance Director on

the principal judgements made in determining the 2012 annual report and fjnancial statements and the 2013 half- year report, reviewed these judgements and satisfjed itself that they were robust and in accordance with the Group’s accounting policies;

• considered and agreed the scope and fees to be paid to

the external auditors for the 2013 audit;

• received a bi-annual update on the Group’s monitoring of

fraud risk assessment;

• reviewed the risk register and ensured that the audit

activities aligned with it;

• ensured itself as to the adequacy of controls across the

worldwide businesses, particularly with regard to entities which are not controlled by the Group;

• monitored non-audit fees in comparison to the audit fees

in accordance with the Company’s policy on the provision

• f non-audit services (as detailed in External Auditor

Objectivity and Independence below);

• reviewed the internal audit programme and fjndings and

remediation actions as well as agreeing the internal audit plan for 2014 ensuring an adequate coverage of risks;

• received a report at each meeting on the progress and
• utcome of the investigation of whistleblowing notifjcations;
• received a report from the Group’s information

security forum on the state of information security within the Group and reviewed a plan to strengthen cyber resilience;

• reviewed the capability and bench strength of the

divisional fjnance functions;

• reviewed its terms of reference and proposed changes to

the Board;

• conducted an evaluation exercise to review its own

effectiveness; and

• made a recommendation to the Board regarding the

tender of the external audit.

SIGNIFICANT ISSUES CONSIDERED

The committee has reviewed the key judgements applied in the preparation of the consolidated fjnancial statements which have been prepared in accordance with the accounting policies and detailed notes to the fjnancial statements on pages 110 to 149. The committee received a paper, prepared by management and reviewed by the external auditors, setting out by division the key judgements made in relation to the following matters:

• Revenue and margin recognition

The recognition of revenue and profjts on long-term construction and service contracts requires management to exercise signifjcant levels of judgement involving a high degree of discretion and control. For construction- type contracts the key judgement concerns the recognition of profjts, the recovery of work-in-progress and debtors, especially on non-certifjed amounts (including variations and claims) and forecast outcomes. For service-type contracts the key accounting risk is that the revenue and costs are not recognised in the correct period and provisions are not made for losses when foreseen. For contracts in the Equipment Services division, where revenue is recognised on either the sale of equipment or over the period of an equipment hire, the key accounting risk relates to whether the appropriate cut-off for sales and period of hire has been applied. The committee reviewed the fjndings of audits and management judgements/reviews undertaken on a selection of contracts perceived to carry the highest risk

• f misstatement against the background of its familiarity

with the operationally and/or commercially challenged contracts which are regularly discussed at Board meetings.

• Retirement benefjt accounting

Calculation of the retirement benefjt obligation requires management to make a number of assumptions including the selection of an appropriate discount rate and mortality. The committee satisfjed itself as to the reasonableness

• f the assumptions set out in note 30 to the fjnancial

statements, taking into account the independent third- party confjrmations sought of the pension assets held at the balance sheet date, validation of the value established by management of the PFI assets and the accounting treatment of the adoption of IAS 19 (Revised), including the restatement of the 2012 comparators.

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• Carrying value and existence of equipment hire fmeet

The committee satisfjed itself regarding the carrying value of the hire fmeet within Equipment Services taking into account prospective utilisation, the results of a selection of asset counts both in the UK and overseas, the testing of the existence of equipment on customer sites by checking that customers were paying the rentals for that equipment and the appropriateness

• f recognition of sales income when it is on hire,

not returned or damaged at customer sites. The committee also satisfjed itself as to the reasonableness

• f management’s impairment testing model including

the cash fmow projections from the latest budgets, the discount rate applied to those cash fmows and sensitivities applied to those key assumptions.

• Carrying value of goodwill and other intangible assets

The carrying value of goodwill and other intangible assets

• n the balance sheet at the year end was £286.6 million

which included goodwill with a value of £248.0 million. The committee received a report on and satisfjed itself of the appropriateness of the impairment testing undertaken by management including the key assumptions used, such as the discount rate and future cash fmows, in light of current business performance and future projections.

FAIR, BALANCED AND UNDERSTANDABLE FINANCIAL STATEMENTS

The directors are responsible for preparing the annual

• report. At the request of the Board the committee

considered whether the report and accounts taken as a whole was fair, balanced and understandable. In making that assessment, the committee took into account whether the report and accounts provided the necessary information for shareholders to assess the Company’s performance, business model and strategy. The committee was satisfjed that, taken as a whole, the 2013 annual report was fair, balanced and understandable and contained the information set out above and reported accordingly to the Board. The Board’s statement in this regard is set out on page 98.

EXTERNAL AUDIT

The committee considers and makes recommendations to the Board as regards audit matters. The committee also seeks to ensure co-ordination between the activities of the external and internal auditors and reviews the effectiveness of the audit at the end of the audit cycle. Deloitte LLP has been the Company’s auditor since August 1990. The committee concluded that the end of the 2013 statutory audit would be an appropriate juncture at which to invite four accounting fjrms representing a cross- section of the market to compete for the appointment. Presentations are due to be made by the competing fjrms to a selection panel in good time for the committee to consider the panel’s proposal and make a recommendation to the Board, well in advance of the planned posting date for the Notice of AGM.

EXTERNAL AUDITOR OBJECTIVITY AND INDEPENDENCE

The committee assessed the external auditors’ objectivity and independence and the effectiveness of the external audit process at the end of the 2012 audit cycle, throughout the course of the year and again at year end, canvassing the views of a number of those involved in the audit process and concluded that Deloitte LLP remained independent. The Company has an established policy aimed at safeguarding the independence and objectivity of the Group’s external auditors. The external auditors may carry out certain categories

• f non-audit work in areas that have been pre-approved

by the committee up to a monetary limit of £150,000 per

• transaction. Any other work for which management may wish

to instruct the external auditors up to a value of £250,000 must be approved in advance by the committee or, more normally, by the committee Chair on its behalf. Instructions above £250,000 require prior approval of the Board. The pre-approved services may be summarised as follows:

• assurance services, tax compliance and advisory services

and where audit reports are required by statute or regulation; and

• other services, encompassing general consultancy services.

The above policy also prohibits the auditors auditing their

• wn work, making management decisions, entering into

any arrangement in relation to audit work whereby a joint interest is created between the Company and the auditor, acting in the role of advocate for the Company or being appointed as recruitment consultants without the committee’s prior consent. The committee receives a report at each of its meetings itemising the fees expended and forecast to be expended with the external auditors for non-audit services. Having reviewed the December 2013 report, the committee concluded that the nature and extent of non-audit fees expended on tax compliance and advice, work on the liquidation of a Malaysian subsidiary and the review of the half-year report (amounting to 14 per cent, 3 per cent and 7 per cent, respectively, of the overall audit fee of £807,000), in conjunction with the safeguards implemented by Deloitte, including the use of specialists independent

• f the audit team, were suffjcient so as not to compromise

auditor objectivity and independence.

76 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE AUDIT COMMITTEE REPORT

Further details of the audit and non-audit fees paid to the auditors are included in note 4 to the fjnancial statements

• n page 120.

A change in audit partner is made every fjve years in accordance with latest guidance and best practice. Accordingly, the transition between audit partners is currently underway in conjunction with the audit tender

• process. There are no contractual obligations that restrict

the committee’s choice of external auditors.

INTERNAL AUDIT

The function of internal audit is to provide an independent and objective appraisal to the Board, through the Audit Committee, of the adequacy and effectiveness of the processes established to control the business and to assist the Board in meeting its objectives and discharging its responsibilities. The committee is responsible for monitoring, reviewing and assessing the role and effectiveness of internal audit in the overall context of the Group’s risk management system and review. The details of the internal audit programme are submitted to the Audit Committee for approval, and may be modifjed (subject to agreement of the Audit Committee) based on changing circumstances. The 2013 programme was modifjed to include the acquisition of Paragon, TOCO and Adyard. The internal audit programme of work is risk based, with key business activities and fjnancial reporting processes considered for internal audit review on a cyclical basis. The work is carried out by PwC under an outsource contract, renewable annually. The principal objectives for the 2013 plan were to provide core assurance against those areas identifjed as high risk on the audit universe (created by considering the organisational structure and key business processes within it), together with further assurance on some of the medium-risk areas identifjed for rotational audit testing. The committee received a summary of each internal audit review covering the fjndings, proposed corrective actions and management’s responsiveness to those fjndings and

• recommendations. Closure of the agreed corrective actions

is tracked via a web-based system and is monitored by management and the committee. 2013 also saw the introduction of a system-based tracking and questionnaire tool requiring management to complete a self-assessment of compliance with key controls across 14 different business areas within their particular business unit or function which provided compliance statistics from across the Group. The results of the self-assessments were aggregated by division and processed with the results of

• ther basic controls reviews conducted by the internal audit

team during the year. A comparison was then made with the results of the basic controls reviews performed during 2011 and 2012 which showed that:

• businesses subject to previous basic controls reviews had

maintained or improved their level of control;

• whilst differing business units approached controls in

different ways common mitigation controls existed; and

• newly acquired businesses were in a state of transition to

the higher control standards required by the Group. The Internal Audit partner has direct access to the Chair of the Audit Committee and they meet on a periodic basis. The committee also agreed an internal audit work plan for 2014, designed to provide core assurance against areas identifjed as high risk, updated in accordance with the changing risk profjle of the Group, together with further assurance on some of the medium-risk areas identifjed for rotational testing.

REVIEW

After undertaking a review of its own performance the committee concluded that it had been effective in discharging the obligations entrusted to it by the Board.

AGM

The Chair of the Audit Committee will be available at the AGM to answer questions about the work of the committee. Approved by the Board Anne Fahy Chair of the Audit Committee 28 February 2014

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INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

DIRECTORS’ REMUNERATION REPORT

CHAIRMAN’S SUMMARY STATEMENT

Dear Shareholder I am pleased to present the Remuneration Committee’s annual report on directors’ remuneration. The Directors’ Remuneration Report has been prepared in accordance with the requirements of the revised remuneration regulations and, as such, has been split into two parts:

• our Policy on Directors’ Remuneration, which sets out our future remuneration policy (pages 78 to 85); it will be put to a

binding shareholder resolution at the forthcoming AGM; and

• our Annual Report on Remuneration, which describes how the policy was implemented in 2013 and how it will be applied

in 2014 (pages 85 to 97); it will be put to an advisory shareholder resolution. This was another important year for the Company during which we strengthened the balance sheet by completing the transfer

• f a signifjcant proportion of our remaining PFI assets to the pension fund and made three acquisitions, including two in the
• il and gas sector in the Middle East.

Despite continuing mixed market conditions the business performed strongly, delivering growth by expanding into new markets and through continued investment in the existing business and increasing headline EPS by 5.3 per cent. Our strategy remains to develop the strength of our three main business streams and grow these businesses where we are able to gain competitive advantage by applying our core skills in adjacent markets and geographies leading to sustainable growth in shareholder value. Our share price increased during the year by 60.2 per cent on top of 21.2 per cent in the previous year. This was refmected in our TSR growth of 267.3 per cent over the three-year performance period, placing us well ahead of our comparator group. The TSR element of the 2011 Performance Share Plan awards will therefore vest in full. We were again mindful of the continued restraint on pay across the Group, with the result that the salaries of the executive directors were increased by 3 per cent, which was broadly in line with the increase awarded to salaried employees generally. The performance conditions for Annual Variable Pay have been set such that an on-target performance will result in a payout

• f 50 per cent of annual salary and, in order to achieve the maximum payout of 100 per cent, normalised EPS will need to

achieve a level that is on track to achieve a doubling of normalised EPS over a fjve-year period from a 2010 base. We have again set exacting targets for the Performance Share Plan in order to provide a strong incentive to management to deliver sustained EPS growth and linked to the Board’s aspiration to double normalised EPS over the fjve-year period from 2010. Growth in normalised EPS over the three-year performance period of the 2011 Performance Share Plan awards was 19 per cent which, when adjusted for the PFI transaction mentioned above, increased to 77.5 per cent and will result in a full vesting of the EPS element of those awards. We will continue to strike an appropriate balance between incentivising the executives, setting stretching targets which support our strategic ambition and our increasing shareholder value whilst not encouraging excessive risk taking. We believe our Remuneration Policy achieves this aim and trust that you will endorse it with a vote in favour at the AGM, as the directors intend to do in respect of their own benefjcial holdings. David Thorpe Chairman of the Remuneration Committee DAVID THORPE CHAIRMAN OF THE REMUNERATION COMMITTEE

78 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

REMUNERATION POLICY

This part of the Directors’ Remuneration Report sets out the remuneration policy for the Company with effect from 13 May 2014, subject to shareholder approval at the AGM to be held on that day.

SUMMARY OF REMUNERATION POLICY FOR 2014 ONWARDS

The following table summarises the main elements of the executive directors’ remuneration policy for 2014 onwards, the key features of each element, their purpose and linkage to our strategy. Details of the remuneration arrangements for the non- executive directors are set out on page 84.

Element of pay Purpose and link to strategy How operated in practice (including framework for assessing performance) Maximum opportunity

Base salary To recruit and retain executives of a suitable calibre for the role and duties required. Refmects the market rate for the individual and their role. Reviewed annually with any changes generally taking effect from 1 July. Salaries are determined taking into account:

• the experience, responsibility, effectiveness and market value of the

executive;

• the pay and conditions in the workforce;
• pay relativities within the Group;
• broadly the median position in light of remuneration within other

similar companies and the Company; and

• affordability, given the profjts of the Company.

Normally paid monthly in cash. There is no prescribed maximum annual increase. The Committee is guided by the general increase for the broader workforce but recognises that higher increases may be appropriate where an individual is promoted, changes role, where the size, composition and/

• r complexity of the

Group changes or where an individual is materially below market comparators

• r is appointed on a below

market salary with the expectation that his/ her salary will increase with experience and performance. Benefjts To provide benefjts commensurate to the market in which the Company

• perates and/or the

market in which the director is based and in line with policies applicable to all other senior salaried employees. Car (cash allowance and/or company car) and fuel (or fuel allowance). Private medical insurance. Permanent health insurance. Life assurance. Relocation expenses, allowance for disruption and ongoing expatriate benefjts. Directors’ and offjcers’ liability insurance. Reasonable personal use of mobile telephone. The value of benefjts may vary from year to year depending on the cost to the Company. Additional benefjts may be provided and the range

• f those benefjts may

vary taking into account market practice, the relevant circumstances and the requirements

• f the executive.

Pension To provide benefjts commensurate to the market in which the Company operates. A Company contribution calculated at up to 15% of base salary for executive directors provided they are making the maximum 8% employee contribution. Employees whose pension provision exceeds HMRC limits are permitted to opt out of making pension contributions and instead receive the Company contribution as a non-bonusable salary supplement. Employees who elect to take the cash allowance still benefjt from the life cover of four times base salary provided to members of the pension scheme and death-in-service cover. Employees who have not chosen to opt out of making pension contributions are eligible to participate in the Company’s “SMART Pensions” arrangement. SMART Pensions is a salary sacrifjce arrangement set up by the Company providing an option for employee pension contributions to be met by their employer following a corresponding sacrifjce in their contractual pay. This scheme affords the Company a saving in employer’s National Insurance contributions. Employer’s defjned contribution and/or pension cash supplement up to a total maximum of 15% of base salary.

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Element of pay Purpose and link to strategy How operated in practice (including framework for assessing performance) Maximum opportunity

Annual Variable Pay To incentivise the achievement of annual targets, rewarding strong

• perational

performance in line with and in excess of targeted performance. Targets are set by the Committee in relation to stretching targets that are set annually by the Board. A majority (if not all) of the bonus will be based on fjnancial targets and a minority (if at all) of the bonus may be based on other performance metrics linked to the business strategy. Annual Variable Pay is deliverable in cash, an element of which must be invested in Company shares until the shareholding guidelines are achieved. If an executive director’s shareholding in the Company is less than 100% of his basic salary, a percentage of the net Annual Variable Pay receivable in excess of 25% of basic salary is required to be invested in Company shares in accordance with the arrangements stated below:

• for the balance of any Annual Variable Pay received between 25% and

50% of basic salary, 30% of the net Variable Pay must be invested in Company shares and 70% may be retained; and

• for the balance of any Annual Variable Pay received between 50% and

100% of basic salary, 50% of the net Variable Pay must be invested in Company shares and 50% may be retained. Company shares so acquired must be held for three years. The Committee has the overriding discretion to adjust the bonus outcome up or down (subject to the overall 100% maximum) to ensure the payment is fair and appropriate in all the circumstances. Clawback applies to any overpayment of Annual Variable Pay in the event

• f misstatement, error or misconduct for a period of one year after the

date on which a payment is made. Annual Variable Pay is not pensionable. Maximum opportunity: 100% of basic salary. Entry level performance: No more than 10% of basic salary. A graduated scale of targets operates between entry level and maximum performance. Performance Share Plan (PSP) To provide a longer term incentive to reward executive directors for achieving the Group’s longer term objectives. To provide alignment with shareholders and provide a retention tool. PSP awards may be granted each year to senior executives. The awards will usually vest no earlier than the third anniversary of the date of grant, provided that the performance conditions have been satisfjed over a three-year period (commencing on 1 January in the year

• f the award).

Dividends notionally accrue on awards from the date of award and an equivalent cash sum will become payable on vesting to the extent that the shares ultimately vest. Clawback applies in the event of misstatement, error or misconduct for a period of one year after the date on which a payment is made. Awards will be made in the form of nil-cost options. Long-term incentive awards vest based on three-year performance against a challenging range of EPS and, separately, relative TSR performance targets. EPS performance targets are set after having due regard to internal planning and market expectations for the Company’s performance and relative TSR performance is measured against a bespoke comparator group of similar companies. No more than one-third of each part of an award vests for achieving the threshold performance levels with full vesting for achieving the maximum performance targets under each element (e.g. upper quartile TSR performance) with graduated scales operating between performance

• points. No awards vest for below threshold performance levels.

The Committee will review the performance conditions each year prior to awards being made (e.g. to determine whether the TSR peer group continues to remain appropriate, whether the range of EPS performance targets remains appropriate and, more generally, in light of the Company’s long-term strategy and growth aspirations). Should there be a material change in the Company’s performance conditions (e.g. introducing an additional performance metric) appropriate dialogue with the Company’s major shareholders would take place along with a full explanation in the Annual Report on Remuneration to support any such change. Maximum: 150% of basic salary (at the date of grant) for the executive directors, save in exceptional circumstances in relation to recruitment or retention where an award of up to 200% of basic salary (at the date of grant) may be made. No more than one-third of any part of a performance condition can vest for achieving the threshold performance level.

80 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

Element of pay Purpose and link to strategy How operated in practice (including framework for assessing performance) Maximum opportunity

All-employee share schemes To support and encourage share

• wnership by

employees at all levels. The Company currently provides two all-employee HMRC-approved share schemes for its employees, the Interserve Sharesave Scheme 2009 (the “Sharesave Scheme”) and the Interserve Share Incentive Plan 2009 (the “SIP”). Under the Sharesave Scheme, eligible employees may enter into a savings contract for a minimum fjxed term of three years and at the end of the savings period they have the option to buy shares in the Company at an exercise price fjxed at the start of the savings contract. Under the SIP, eligible employees are offered the opportunity to invest pre- tax earnings (subject to HMRC limits per tax year) in Company shares under a regular monthly share purchase plan or by up to two lump sum payments per tax year (or a combination of the two). Shares so purchased are placed in

• trust. The shares can be released from the trust to participants at any time,

but income tax and national insurance contributions are payable on their value should they be released within fjve years of their purchase date. The SIP rules also provide for matching shares and free shares (up to certain prescribed limits) to be given to participants. Dividend payments on SIP shares are reinvested in dividend shares and must be held in the trust for three years. The executive directors are entitled to participate in both schemes on the same terms as all other eligible

• employees. Maximum
• pportunity is the same for

all participants as defjned within the terms of the scheme and prescribed by HMRC. Shareholding guidelines Under the Shareholding Guidelines executive directors are expected to retain no fewer than 100% of shares net of taxes following an option exercise or award vesting under the PSP , until such time as a shareholding equivalent to 100% of their base salary has been achieved. Shares purchased under the Annual Variable Pay arrangements, the Sharesave Scheme and the SIP also count toward this limit. Share options and vested, but unexercised, PSP awards do not count towards satisfying these Guidelines. The Remuneration Committee retains the discretion to adjust the requirement to invest Annual Variable Pay in Company shares and retain share awards on vesting in appropriate circumstances.

Notes to the table

The Committee will select fjnancial and, if appropriate, strategic measures as targets for Annual Variable Pay that are key performance indicators for the business over the short term. For the long-term incentives, the Committee will select a combination of measures that provide a good focus on the outcomes of the Company’s strategy together with sustainable improvements in long-term profjtability. The Committee sets appropriate and demanding targets for Variable Pay in the context of the Company’s trading environment and strategic objectives. The Committee considers that, for awards made to date, a combination of normalised EPS and TSR for the Executive Board is the most appropriate measure of performance for awards made under the PSP. The EPS target rewards signifjcant and sustained increases in value and delivers strong “line of sight”, whilst the TSR performance condition provides balance by rewarding good relative stock market performance and introduces an element of share price-based discipline to the package. The blend of these two complementary measures is considered to reduce the risk level of the PSP compared to the position if a single metric applied to the entire award. There are no performance conditions for the Sharesave Scheme and SIP as they are all-employee share plans aimed at encouraging wider employee share ownership. The remuneration policy for the executive directors is designed with regard to the policy for employees across the Group as a whole. There are some differences in the structure of the remuneration policy for executive directors and other senior employees, which the Committee believes is necessary to refmect the different levels of responsibility of employees across the Group. In particular, as remuneration levels

• verall are higher, performance-linked variable pay comprises a much higher proportion of remuneration at more senior levels and there

is more of a focus on Group results, rather than business unit or individual performance. This provides a stronger alignment of interest between senior executives and investors. Specifjcally, benefjts provided to executive directors (with the provision of a cash allowance and/or company car benefjt the element that is considered signifjcant in value terms and limited to £30,000) are aligned with those provided to senior managers across the Group, as is participation in the PSP, which is limited to the top 130 or so senior employees. Senior employees below Executive Board level are provided with lower levels of awards that only have an EPS-based performance condition. For the avoidance of doubt, in approving this Directors’ Remuneration Policy, authority is given to the Company to honour any commitments entered into with current or former directors (such as the payment of a pension or the vesting or exercise of past share awards) that have either been set out in previous remuneration reports or disclosed to and approved by shareholders and in respect of outstanding share awards as detailed on pages 91 to 94 of the Annual Report on Remuneration. Details of any payments to former directors will be set out in the Annual Report on Remuneration as they arise.

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81

OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

DISCRETION RETAINED BY THE COMMITTEE Annual Variable Pay and Long-Term Incentive Plan fmexibility

The Committee will operate the Company’s incentive plans according to their respective rules and consistent with normal market practice, the Listing Rules and HMRC rules where relevant including fmexibility and discretion in a number of respects and as set out in the respective plan

• rules. In particular, but not limited to, the Committee has

fmexibility regarding: the testing of a performance condition

• ver a shortened performance period; how to deal with a

change of control or restructuring of the Group (as set out in more detail on page 83); determination of a good/bad leaver for incentive plan purposes; and adjustments required in certain circumstances (e.g. rights issues, corporate restructuring, events and special dividends). The Committee also retains the discretion to adjust the targets and/or set different measures and alter weightings for the Annual Variable Pay arrangements and PSP or to remove the effects of “one-off” events in relation to the PSP if events occur that cause it to determine that the metrics are no longer appropriate and amendment is required so they can achieve their original intended purpose and to waive some or all of the shareholding guidelines in exceptional circumstances.

DIRECTORS’ REMUNERATION SCENARIOS

The charts below show how the composition of the executive directors’ remuneration packages varies at different levels of performance under the remuneration policy to be implemented in 2014. A substantial portion of the remuneration packages are performance related and therefore this is illustrated for three different performance scenarios: minimum (fjxed pay only), on-target performance and maximum performance. Assumptions:

• Minimum — fjxed pay only, including salary effective

1 July 2013, 15 per cent of salary pension contribution (or 15 per cent of salary contribution in lieu of pension) and benefjts received in the 2013 fjnancial year.

• On-Target — minimum plus 50 per cent of the maximum

payout under the Annual Variable Pay plan, and 34 per cent PSP vesting.

• Maximum — minimum plus 100 per cent of the

maximum payout under the Annual Variable Pay plan, and full PSP vesting. Dividend equivalent payments provided for under the PSP have been disregarded and no share price growth assumed for the purposes of these charts.

SERVICE CONTRACTS AND POLICY ON PAYMENTS FOR LOSS OF OFFICE Service contract policy

All newly appointed executive directors will have contracts terminable at any time on up to one year’s notice. Under the terms of the contract, should notice be served by either party, the executives can continue to receive basic salary, benefjts and pension for the duration of their notice period during which time the Company may require the individual to continue to fulfjl their current duties or may assign a period of garden leave. Contracts also contain the ability, at the Company’s discretion, to make a payment in lieu of notice of up to of

• ne year’s basic annual salary.

Details of the current executive directors’ service contracts are summarised below. Each contract has an indefjnite unexpired term and a notice period of one year.

Name Date of contract

S L Dance 10 January 2008 T P Haywood 30 November 2010 B A Melizan 10 January 2008 A M Ringrose 13 December 2001 D I Sutherland 1 January 2011

£558,757

Minimum LTIP Annual Variable Pay Fixed Pay

£978,034

On-target Chief Executive Finance Director

£1,723,415

Maximum

£401,645

Minimum

£703,564

On-target

£1,240,308

Maximum

58% 33% 59% 100% 100% 57% 24% 19% 32% 27% 41% 57% 24% 19% 32% 27% 41% 100% 100% 100% 57% 24% 19% 40% 27% 33% 23% 27% 23% 19% 40% 18% 40% 26% 34%

£339,858

LTIP Annual Variable Pay Fixed Pay Minimum

£589,427

On-target Managing Director, Equipment Services Managing Director, Support Services Managing Director, Investments and UK Construction

£1,033,106

Maximum

£351,825 £334,359

Minimum Minimum

£601,394 £583,928

On-target On-target

£1,045,073 £1,027,607

Maximum Maximum

INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

Copies of the service contracts are available for inspection by shareholders at the AGM. The Committee will continue to keep under review the terms of executive directors’ service contracts. The table below summarises the policy on payments to executive directors for loss of offjce. The overriding principle will be to honour contractual remuneration entitlements and determine on an equitable basis the appropriate treatment of deferred and performance-linked elements of the package, taking account of the circumstances. Failure will not be rewarded.

Element Resignation1 Departure on agreed terms2 Good leaver3

Salary (after cessation of employment) Nil For existing directors up to one year’s basic

• salary. Newly appointed executive directors

can continue to receive basic salary for the duration of their notice period of one year. The Company will have the discretion to make a payment in lieu of notice comprising up to 12 monthly instalments of base salary which would be mitigated proportionate to income received through alternative employment. Nil Pension and benefjts Nil For existing directors up to one year’s benefjts and pension. For newly appointed directors up to one year’s benefjts and pension as part of the PILON as detailed above. Nil Annual Variable Pay Nil if the executive departs before the payment date unless the Remuneration Committee determines

• therwise.

May be payable at the discretion of the Committee based upon performance and pro-rated for the proportion of the fjnancial year worked. No payment will be made in respect of any period of notice not worked. May be payable at the discretion of the Committee based on performance pro- rated for the proportion of the fjnancial year worked. Performance Share Plan All awards, including those which have vested but are unexercised will lapse immediately upon cessation of employment. Awards will lapse upon cessation of employment unless the Committee decides otherwise in which case awards may be exercised within 12 months of the vesting date. Where employment ends before the vesting date, awards may only be exercised to the extent that the performance conditions have been satisfjed, but will be reduced pro-rata based upon the period of time after the grant date and ending on the date of cessation of employment relative to the three-year performance period unless the Committee, acting fairly and reasonably, decides that such a reduction is inappropriate in any particular case. Awards may be exercised within 12 months of the vesting date. Where employment ends before the vesting date, awards may only be exercised to the extent that the performance conditions have been satisfjed, but will be reduced pro-rata based upon the period

• f time after the grant date and

ending on the date of cessation

• f employment relative to the

three-year performance period unless the Committee, acting fairly and reasonably, decides that such a reduction is inappropriate in any particular case. All-employee share schemes (Sharesave and SIP) In accordance with the scheme rules. Other payments Nil Depending upon circumstances the Committee may consider payments in respect of any statutory entitlements,

• utplacement support and assistance with

legal fees. Nil

1For example, normal resignation from the Company or termination for cause (e.g. gross misconduct). 2

This may cover a range of circumstances such as business reorganisation, changes in reporting lines, change in need for the role, termination as a result of a failure to be re-elected at an AGM.

3

For compassionate reasons such as death, injury or disability, retirement with the agreement of the employer. Should a compromise agreement be reached with an individual, in terms

• f quantum it will be within the maximum amounts set out above.

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OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

There are no provisions in executive directors’ service agreements entitling them to terminate their employment or receive damages in the event of a change in control of the Company. The Annual Variable Pay scheme does not include any provision entitling early or any payment to be made on a change in control of the Company. In the event of change of control, PSP awards would be eligible to vest based on (i) the extent to which performance targets had been met, as assessed by the Committee, over the shortened performance period and (ii) subject to a pro rata reduction for time (which the Committee retains discretion to disapply if it considers it appropriate to do so). As an alternative, and in agreement with an acquiring company, the awards may be replaced with equivalent awards in the acquiring company’s shares. The Sharesave Scheme provides that if a change in control of the Company occurs, any options may be exercised within a month (or such longer period as the Board may permit up to a maximum of six months). There are also rollover provisions similar to those under the PSP explained above.

RECRUITMENT REMUNERATION

In cases where the Company recruits a new executive director, the Committee will follow the policy set out below to determine his/her ongoing remuneration package. In arriving at a total package and in considering quantum for each element

• f the package, the Committee will take into account the skills and experience of the candidate, the market rate for a

candidate of that experience as well as the importance of securing the preferred candidate. The remuneration package for a new executive director would be set in accordance with the terms of the Company’s approved remuneration policy in force at the time of appointment.

Element General policy Specifjcs

Salary At a level required to attract the most appropriate candidate. Discretion to pay a lower basic salary with increases at a rate above infmation over two to three years as the new appointee becomes established in the role. Pension and benefjts In line with Company policies. Where appropriate, relocation expenses/arrangements may be provided. Annual Variable Pay In line with existing schemes. Maximum opportunity 100%

• f base salary.

Specifjc targets could be introduced for an individual where necessary for the fjrst year of appointment if it is appropriate to do so to refmect the individual’s responsibilities and the point in the year in which they joined the Board. Performance Share Plan In line with Company policies and PSP rules. Maximum award up to 200%

• f basic salary (at the date of

grant) may be made. An award may be made in the year of joining or, alternatively, the award can be delayed until the following year. Targets would be the same as for other directors. Other share awards

• r remuneration1

The Committee may make an incentive award to replace remuneration forfeited on an executive leaving a previous employer, where to do so would be in the commercial interests of the Company. Awards would, where possible, take into account the awards forfeited in terms of vesting periods, expected value and performance conditions. For unvested performance-related awards, awards of broadly similar quantum (allowing for the impact of any performance targets), with appropriate performance conditions.

1The Committee may make use of the fmexibility provided in the Listing Rules to make such awards if deemed appropriate in terms of replacing forfeited variable pay.

In the case of an internal appointment, any variable pay element awarded in respect of the prior role may be allowed to pay

• ut according to its terms on grant, adjusted as relevant to take into account the appointment. In addition, any other ongoing

remuneration obligations existing prior to appointment may continue as appropriate.

EXTERNAL DIRECTORSHIPS

The Board is comfortable with the principle of executive directors sitting on another company board as a non-executive in

• rder to assist with their development, subject to the prior approval of the Chief Executive and the Board. Any fees earned

in that capacity may be retained by the executive director.

TERMS OF APPOINTMENT AND REMUNERATION POLICY FOR NON-EXECUTIVE DIRECTORS

Non-executive directors are appointed initially until the fjrst AGM of the Company following appointment, when they are required to stand for election by shareholders. Non-executive directors do not have service contracts, they are engaged by letters of appointment which are terminable upon one month’s notice by either party, without compensation, save for the Group Chairman whose appointment is terminable upon six months’ notice by either party, without compensation. The dates of appointment of the non-executive directors are set out below:

Name Date fjrst appointed Date last re-elected

Lord Blackwell 1 September 2005 13 May 2013 L G Cullen 1 October 2005 13 May 2013 A K Fahy 1 January 2013 Elected 13 May 2013 K L Ludeman 1 January 2011 13 May 2013 D A Thorpe 1 January 2009 13 May 2013 D A Trapnell 11 July 2003 Retired 13 May 2013

SUMMARY OF REMUNERATION POLICY FOR NON-EXECUTIVE DIRECTORS

Element Purpose and link to strategy How operated in practice Maximum opportunity

Fees To recruit and maintain non-executives of a suitable calibre for the role and duties required. The Group Chairman’s fee is reviewed by the Committee (without the Group Chairman present). The remuneration policy for the non-executive directors,

• ther than the Group Chairman, is determined by a sub-

committee of the Board comprising the Group Chairman and the executive directors. Non-executive directors receive a fee for carrying out their duties, together with additional fees for the Senior Independent Director and for those non-executive directors who chair the primary Board committees (i.e. Audit and Remuneration Committees). Other fees may be introduced if considered appropriate, for example in the event of exceptional levels of additional time being required, or new responsibilities being assigned in response to corporate developments. The non-executive directors and the Group Chairman do not currently receive benefjts, but the Board retains a discretion to introduce such benefjts if considered appropriate. The fees of the non-executive directors are determined by the Board taking into account amounts paid by other similar-sized listed companies, the time commitment of the individual, role and responsibilities. Fees are reviewed in detail biennially with an annual interim review. There is no prescribed maximum annual increase. The Committee is guided by the general increase in the non-executive director market and for the broader employee population but

• n occasions may need to

recognise, for example, an increase in the scale, scope

• r responsibility of the role.

CONSIDERATION OF EMPLOYEE VIEWS

Although the Committee does not consult directly with employees on executive remuneration we do run a biennial employee survey where employees are able to express their views on a range of issues including their own remuneration. The Committee considers the general basic salary increase as well as pay and conditions for the broader salaried employee population when determining the annual salary increases for the executive directors. The Committee receives an annual report for all employees whose basic salary is in excess of £120,000 p.a., detailing the signifjcant elements which make up total remuneration. This enables the Committee to assess the impact of remuneration decisions upon the total cost of employment.

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OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

CONSIDERATION OF SHAREHOLDER VIEWS

The Committee considers any shareholder feedback received in relation to the AGM as well as taking into account the general climate regarding executive pay. This feedback, plus any additional feedback received during any other shareholder meetings from time to time, is then considered as part of the Company’s annual review of remuneration policy. When there are material issues relating to executive remuneration or proposed changes in policy, we engage actively with major shareholders to ensure we understand the range of their views. When signifjcant changes are made within the policy, the Remuneration Committee Chairman will inform shareholders accordingly.

ANNUAL REPORT ON REMUNERATION

HOW THE DIRECTORS’ REMUNERATION POLICY WILL BE APPLIED FOR THE YEAR ENDING 31 DECEMBER 2014

A summary of how the Directors’ Remuneration Policy will be applied during the year ending 31 December 2014 is set

• ut below.

Salaries for executive directors

Salaries are reviewed annually with increases effective from July of each year. The current salaries as at 1 January 2014 are as follows:

Name Salary as at 1 January 2014 £ Percentage change from 1 January 2013 %

S L Dance 277,299 3.00 T P Haywood 335,465 3.00 B A Melizan 277,299 3.00 A M Ringrose 465,863 3.00 D I Sutherland 277,299 3.00 Mr Melizan is an unremunerated director of the Safer London Foundation.

Annual Variable Pay

The maximum bonus potential for the year ending 31 December 2014 will remain at 100 per cent of salary for all the executive directors. Between 50 per cent and 100 per cent of annual basic salary will become payable upon achievement of between 100 per cent and 135 per cent of budgeted normalised EPS (defjned as headline EPS adjusted to exclude IAS 36 Impairment of assets and IAS 39 Financial instruments and any unbudgeted “one-off” contributions to EPS which the Committee exercises its discretion to exclude). Where normalised EPS is between 95 per cent and 100 per cent of budgeted normalised EPS, a payment of between 10 per cent and 50 per cent of annual basic salary will become payable. Targets are not disclosed on a prospective basis as this information would permit the Group’s profjts to be reverse

• engineered. It is expected, under normal circumstances,

that targets will be disclosed retrospectively for the previous fjnancial year.

Performance Share Plan

Awards will be made in 2014 to executive directors over shares worth 150 per cent of basic salary as at the date of grant, subject to the following performance conditions: Earnings per share growth

Normalised EPS1 growth of the Company

• ver the performance period

Vesting percentage of two-thirds of shares subject to the award

Less than 32% 0% 32% to 83% 25% to 100% (pro-rated) Greater than 83% 100%

1

Normalised EPS is Headline earnings per share adjusted to refmect growth in underlying value created by (a) removing the impact of IAS 36 Impairment of assets and IAS 39 Financial instruments; and (b) recognising or removing “one-off” events at the judgement of the Committee. For the 2014 awards vesting in 2017, the Committee intends to exercise discretion such that the award will refmect the underlying earnings growth, in line with our strategic ambitions.

This sliding scale of EPS performance and vesting is shown graphically below: Growth in normalised EPS will be determined by the Committee after verifying calculations made internally. Total shareholder return Vesting of the other third of an award will be dependent upon the Company’s performance in terms of TSR, as measured against the TSR of each company in the comparator group listed overleaf (the “Comparator Group”) over a three-year performance period, commencing on the fjrst day of the 2014 fjnancial year.

INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

0% 0% 20% 40% 60% 80% 10% 30% 50% 32% 83% 70% 90% 100% 75% 25% 50% Normalised EPS growth over performance period Percentage vesting for two-thirds of award

TSR is calculated as the percentage change in the net return index from the start to the end of the performance period1. This measures the return to an investor on a holding of Interserve shares. The Comparator Group is drawn from the Construction and Materials, and Support Services FTSE

• sectors. Many of the Comparator Group companies are

recognised by the Executive Board as competitors of the Company, which ensures that this is an effective incentive from their perspective: Atkins (WS) Kier Group Babcock International MITIE Group Balfour Beatty Morgan Sindall Capita Group Rentokil Initial Carillion RPS Group Costain Group Serco

1

The return index at the start of the performance period is the average of the net return index over the three months preceding the start of the performance period. The return index at the end of the performance period is the average of the return index over the last three months of the performance period.

The TSR performance conditions are set out in the table below:

TSR ranking of the Company compared to the Comparator Group over the performance period Vesting percentage of one-third

• f shares subject to the award

Below median ranking 0% Median ranking (top 50%) 30% Median to upper quartile ranking 30% to 100% (pro-rated) Upper quartile ranking (top 25%) 100% This sliding scale of TSR performance and vesting is shown graphically below:

Non-executive director fees

The fee levels for the non-executive directors for 2014 are set out in the table below:

Element Fee effective 1 January 2014 £ Fee effective 1 January 2013 £ Percentage change %

Fee paid to Group Chairman 150,000 143,000 4.9 Base fee paid to other non-executive directors 45,100 44,000 2.5 Supplementary fees: Senior Independent Director 7,000 7,000 nil Audit Committee Chairman 10,000 6,000 66.7 Remuneration Committee Chairman 9,000 5,000 80.0 Nomination Committee Chairman See note1 See note1 n/a

1

The Group Chairman is Chairman of the Nomination Committee and receives no supplementary fee for chairing this committee.

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DIRECTORS’ REMUNERATION REPORT CONTINUED

Median Upper Quartile 100% 0% 10% 20% 40% 70% 30% 50% 60% 80% 90% TSR ranking of the Company Percentage vesting for one-third of award

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INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

HOW THE REMUNERATION POLICY WAS APPLIED FOR THE YEAR ENDED 31 DECEMBER 2013

This section is audited. The table below shows the remuneration paid to each director. Further detail is included in the additional tables overleaf.

Remuneration paid to each director

£ Year Salary & fees Taxable benefjts Annual Variable Pay PSP4/5 Pension Other remuneration10 Total

Executive directors S L Dance 2013 273,261 20,964 162,719 680,637 40,9896 1,233 1,179,803 2012 265,939 20,014 269,223 558,116 39,8916 2,050 1,155,233 T P Haywood 2013 330,579 15,860 196,851 823,409 49,5876 − 1,416,286 2012 321,722 14,965 325,69411 − 48,2586 − 710,639 B A Melizan 2013 273,261 32,931 162,719 680,637 40,9898 − 1,190,537 2012 265,939 31,723 269,223 558,116 39,8916/7 − 1,164,892 D J Paterson1 2013 89,741 6,639 − 460,170 13,4616 − 570,011 2012 265,939 19,704 269,223 468,820 39,8916 − 1,063,577 A M Ringrose 2013 459,078 23,015 273,368 1,143,475 68,8628 1,233 1,969,031 2012 446,778 22,546 452,294 937,639 67,0178 2,050 1,928,324 D I Sutherland 2013 273,261 15,465 162,719 610,912 40,9896/9 1,233 1,104,579 2012 252,486 15,465 269,223 410,598 37,8726 2,050 987,694 Sub-total 2013 1,699,181 114,874 958,376 4,399,240 254,877 3,699 7,430,247 2012 1,818,803 124,417 1,854,880 2,933,289 272,820 6,150 7,010,359 Non-executive directors Lord Blackwell 2013 143,000 − − − − − 143,000 2012 130,000 − − − − − 130,000 L G Cullen 2013 50,641 − − − − − 50,641 2012 46,000 − − − − − 46,000 A K Fahy2 2013 47,846 − − − − − 47,846 2012 − − − − − − − K L Ludeman 2013 44,000 − − − − − 44,000 2012 40,000 − − − − − 40,000 D A Thorpe 2013 49,000 − − − − − 49,000 2012 45,000 − − − − − 45,000 D A Trapnell3 2013 18,569 − − − − − 18,569 2012 47,000 − − − − − 47,000 Sub−total 2013 353,056 − − − − − 353,056 2012 308,000 − − − − − 308,000 Former directors 2013 − − − − − − − 2012 − − − − − − − Total 2013 2,052,237 114,874 958,376 4,399,240 254,877 3,699 7,783,303 2012 2,126,803 124,417 1,854,880 2,933,289 272,820 6,150 7,318,359

1

David Paterson retired on 30 April 2013. He received no payment for loss of offjce. His PSP awards have been scaled back in accordance with the good leaver provisions set out in the policy for payments for loss of offjce on page 82 of this report.

2Anne Fahy was appointed on 1 January 2013. 3

David Trapnell retired on 13 May 2013. Mr Trapnell was appointed on 1 January 2013 to the board of directors of Interserve Trustees Limited, the corporate trustee of the Interserve Pension Scheme, for which he receives an annual director’s fee of £16,000 per annum.

4

The share price used to calculate the value of shares for the 2013 PSP awards (which will vest on 20 April 2014) was 621.37p, being the three-month average to 31 December 2013. This will be adjusted in the 2014 report to refmect the actual value once the share price on the date of vesting is known. The values above also include a dividend equivalent of 61.0p per vested share inclusive of the fjnal dividend for 2013 which is subject to shareholder approval at the 2014 AGM.

88 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

5

The share price used to calculate the value of shares for the 2012 PSP awards was 462.5p, the market price on the date of vesting, 19 April 2013. The values above also include a dividend equivalent payment of 69.5p per vested share.

6

Excludes SMART contributions (see table included in the Directors’ Pension Entitlements section on page 89).

7

Inclusive of a 15 per cent salary supplement (£30,041) in lieu of pension contribution for the period 1 April 2012 to 31 December 2012.

8

15 per cent salary supplement in lieu of pension contribution.

9

Inclusive of a 15 per cent salary supplement (£27,528) in lieu of pension contribution for the period 1 May to 31 December 2013.

10

Gains made on the exercise of options under the Sharesave Scheme (see table on page 94). The options granted in 2009, although not exercised until 2013 due to a close period, vested

• n 1 October 2012 and have therefore been included in the 2012 fjgures.

11

A proportion of Tim Haywood’s Annual Variable Pay was subsequently invested in 11,393 shares at 488.2p per share, pursuant to the Shareholding Guidelines.

Additional notes to the Directors’ Remuneration Table

• 1. Taxable benefjts

The table below sets out the constituent elements of the taxable benefjts for the executive directors:

Executive director Year Company car £ Cash allowance in lieu of company car £ Fuel benefjt £ Travel allowance £ Medical insurance £ Total £

S L Dance 2013 13,188 − 6,207 − 1,569 20,964 2012 12,744 − 5,701 − 1,569 20,014 T P Haywood 2013 9,961 − 4,330 − 1,569 15,860 2012 9,480 − 3,916 − 1,569 14,965 B A Melizan 2013 15,206 − 5,372 10,784 1,569 32,931 2012 14,499 − 4,871 10,784 1,569 31,723 D J Paterson1 2013 4,567 − 1,690 − 382 6,639 2012 13,633 − 4,909 − 1,162 19,704 A M Ringrose 2013 − 19,192 2,254 − 1,569 23,015 2012 − 19,192 1,785 − 1,569 22,546 D I Sutherland 2013 − 13,896 − − 1,569 15,465 2012 − 13,896 − − 1,569 15,465 Total 2013 42,922 33,088 19,853 10,784 8,227 114,874 2012 50,356 33,088 21,182 10,784 9,007 124,417

1David Paterson retired on 30 April 2013.

• 2. Determination of 2013 Annual Variable Pay

The analysis below explains how the Annual Variable Pay was determined for 2013. Annual Variable Pay was determined with reference to performance over the fjnancial year ending 31 December 2013. The performance measures and targets, as well as performance against them, are set out below:

Metric Performance target Actual performance Maximum annual award as percentage of salary Actual annual award as percentage of salary

Normalised EPS1 See below Normalised EPS1 growth of 7.9% 100% 58.68%

1

Normalised EPS is Headline earnings per share adjusted to (a) remove the effects of IAS 36 Impairment of assets and IAS 39 Financial instruments; (b) remove the effect of IAS 19R Pensions; (c) take into account any return generated from the sale of any of the Group’s remaining PFI investments in excess of the internal rate of return set by the Board at the approval stage for that investment (excluding the transfer approved by shareholders on 7 January 2013) and any other items determined by the Committee. Percentage of maximum Annual Variable Pay award

Less than budgeted normalised EPS 0% Budgeted normalised EPS 50% 131% of budgeted normalised EPS 100% Between budgeted normalised EPS and 131% of budgeted normalised EPS 50% to 100% pro rata Headline EPS was adjusted by 2.6 per cent for the effect of a £1.5 million post-tax increase in the IAS 19R charge from that included within the budget, resulting in a payout of 58.68 per cent.

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• 3. Determination of Performance Share Plan

payments for 2013 The analysis below explains how the Performance Share Plan payments for the performance period ending 31 December 2013 were determined. The PSP awards granted on 20 April 2011 were based on performance over the three-year period from 1 January 2011 to 31 December 2013 and were subject to the following performance conditions: The EPS Performance Condition for 50 per cent of the 2011 Awards

Adjusted Headline EPS growth of the Company

• ver the performance period

Vesting percentage of 50% of shares subject to the award

Less than 15% 0% 15% to 30% 25% to 50% (pro-rated) 30% to 50% 50% to 100% (pro-rated) Greater than 50% 100% Growth in normalised EPS over the three-year performance period of the 2011 award was 19 per cent which increased to 77.53 per cent after making the PFI adjustment. Accordingly, the EPS element of these awards will result in a full vesting. The TSR Performance Condition for 50 per cent of the 2011 Awards This condition is determined by comparing the Company’s TSR performance to the TSR of each of a defjned list of comparator companies drawn from the Construction and Materials, and Support Services sectors comprising Atkins (WS), Babcock International, Balfour Beatty, Capita Group, Carillion, Costain Group, Kier Group, May Gurney Integrated Services, MITIE Group, Morgan Sindall, Mouchel Group, Rentokil Initial, Rok, RPS Group, Serco, Spice and WSP Group.

TSR ranking of the Company compared to the Comparator Group over the performance period Vesting percentage of 50% of shares subject to the award

Below median ranking 0% Median ranking (top 50%) 30% Median to upper quartile ranking 30% to 100% (pro-rated) Upper quartile ranking (top 25%) 100% Growth in TSR was 267.3 per cent over the three-year performance period, which means that the TSR element

• f the awards will also vest in full.

The 2011 PSP awards were granted in the form of nil-cost

• ptions, exercisable between 20 April 2014 and 19 April 2016.

The 2011 PSP awards will vest as follows:

Executive director Number

• f shares

granted Number

• f shares

to lapse Number

• f shares

to vest Dividend equivalent

• n shares

to vest2 £

S L Dance 99,746 − 99,746 60,845 T P Haywood 120,669 − 120,669 73,608 B A Melizan 99,746 − 99,746 60,845 D J Paterson1 99,746 32,309 67,437 41,136 A M Ringrose 167,574 − 167,574 102,220 D I Sutherland 89,528 − 89,528 54,612

1

David Paterson retired on 30 April 2013. The number of shares to vest has therefore been reduced pro-rata based upon the period of time between the grant date and the date of cessation of employment.

2 This includes the dividend equivalent of 14.7 pence per share for the fjnancial year

ended 31 December 2013 which is subject to approval of the corresponding dividend by shareholders at the 2014 AGM. Accordingly, payment of this dividend equivalent will not be made until after the AGM.

• 4. Directors’ pension entitlements

Defjned Contribution Scheme All the executive directors, with the exception of Adrian Ringrose and Bruce Melizan with effect from 1 January 2012 and 1 April 2012 respectively, are members

• f the Defjned Contribution section of the Scheme and

participated in the Company’s SMART Pensions arrangement (as detailed on page 78). The table below shows, for each executive director, the amount by which their base salaries were reduced and paid by the Company into their pension scheme (SMART contributions), together with the total contributions paid by the Company (including SMART contributions but excluding SMART Bonus and AVC arrangements).

Executive director Year Company contributions (excluding SMART contributions) £ SMART contributions £ Total Company contributions (including SMART contributions) £

S L Dance 2013 40,989 8,786 49,775 2012 39,891 12,038 51,929 T P Haywood 2013 49,587 581 50,168 2012 48,258 1,800 50,058 B A Melizan1 2013 − − − 2012 9,850 3,400 13,250 D J Paterson2 2013 13,461 6,244 19,705 2012 39,891 15,867 55,758 A M Ringrose1 2013 − − − 2012 − − − D I Sutherland3 2013 13,461 3,963 17,424 2012 37,872 9,495 47,367

1

Bruce Melizan and Adrian Ringrose received a 15 per cent salary supplement in lieu

• f pension with effect from 1 January 2012 and 1 April 2012 respectively.

2

David Paterson retired on 30 April 2013.

3

Dougie Sutherland received a 15 per cent salary supplement in lieu of pension with effect from 1 May 2013.

Members of the Scheme have the option to pay additional voluntary contributions (“AVCs”). Neither the contributions nor the resulting benefjts of AVCs are included in the above table.

INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

90 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

Dougie Sutherland and David Paterson also participated in the Company’s SMART Bonus arrangement (available to all employees receiving an annual bonus). The contribution paid by the Company in respect of SMART Bonus for Dougie Sutherland and David Paterson was £39,680 (2012: £23,542) and £39,680 (2012: £7,700) respectively. Non-executive directors’ fees are not pensionable. Defjned Benefjt Scheme Following the benefjt changes to the Interserve Pension Scheme (the “Scheme”), Adrian Ringrose and David Paterson ceased to accrue any further benefjts in the Defjned Benefjt section of the Scheme from 31 December 2009. Their accrued pensions at that date were £72,337 and £31,056 per annum respectively and these pensions will increase up to the point they draw their benefjts broadly in line with price infmation.

Performance graph

The graph below shows the value, on 31 December 2013, of £100 invested in Interserve Plc on 1 January 2009 compared with the value of £100 invested in the companies comprising the Support Services sector of the FTSE All-Share Index. This was chosen for comparison because it is considered to be the relevant benchmark against which to compare

• ur performance.

Source: Thomson Reuters Datastream

Change in Chief Executive remuneration

The table below provides a summary of the Chief Executive’s remuneration over the last fjve years:

2009 2010 2011 2012 2013

Total remuneration (£000) 1,087 619 1,318 1,928 1,969 Annual Variable Pay (% of maximum) 98% 30% 100% 100% 59% PSP vesting (% of maximum) 50% 0% 50% 100% 100%

Percentage change in Chief Executive’s remuneration compared to all employees

The table below shows the percentage change in the Chief Executive’s salary, benefjts and annual bonus between the fjnancial years ending 31 December 2012 and 31 December 2013, compared to the percentage increase in the same for all salaried employees of the Group (on a per capita basis):

Percentage change %

Salary Chief Executive 2.8 All salaried employees 2.3 Benefjts Chief Executive 1.2 All salaried employees

• 6.0

Annual bonus Chief Executive

• 40.0

All salaried employees1

• 20.0

1

This fjgure includes an estimate only of the 2013 bonus. The actual amount will only be known once the March 2014 payroll has been run.

Relative importance of spend on pay

The table below illustrates the change in expenditure by the Company on remuneration paid to all the employees of the Group against other signifjcant distributions and payments from the fjnancial year ending 31 December 2012 compared to the fjnancial year ending 31 December 2013:

2013 £million 2012 £million Percentage change %

Overall expenditure on pay 694.6 624.7 11.2 Dividends paid 27.81 26.0 6.9

1

Including the fjnal dividend for 2013 of 14.7p per share which is subject to shareholder approval at the AGM

Performance Share Plan

The following grants were made to the executive directors under the PSP during the year:

Executive director Number of shares Face value1 £ End of performance period

S L Dance 85,770 399,774 31 December 2015 T P Haywood 103,761 483,630 31 December 2015 B A Melizan 85,770 399,774 31 December 2015 D J Paterson2 − − n/a A M Ringrose 144,094 671,622 31 December 2015 D I Sutherland 85,770 399,774 31 December 2015

1Valued using the share price at the date of grant (9 April 2013), being 466.10p per share. 2David Paterson retired on 30 April 2013.

Awards were made in the form of nil-cost options equivalent to 150 per cent of base salary, exercisable between 9 April 2016 and 8 April 2018. The performance conditions attached to these awards are set out on page 92. Achievement of the minimum performance over the performance period would result in 26.3 per cent of the awards vesting on 9 April 2016 together with the corresponding dividend equivalent.

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2008 2013 2012 2011 INTERSERVE PLC FTSE ALL SHARE SUPPORT SERVICES 2010 2009 £0 £100 £200 £400 £300 Historical TSR Performance Value of hypothetical holdings

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INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

The number of awards over shares in the Company (pursuant to the PSP) held by each person who served as an executive director of the Company during the fjnancial year, is shown below:

Executive director Date granted Balance as at 1 January 2013 Granted during year Market price at date of award pence Vested during year Market price at date of vesting pence Market price at date of exercise pence Lapsed during year Amount realised

• n vesting#

£ Balance as at 31 December 2013 Performance period

S L Dance 19.04.10 104,909 − 236.50 104,909 462.50 462.50 − 558,116 − 01.01.10 − 31.12.121 20.04.11 99,746 − 261.00 − n/a n/a − n/a 99,746 01.01.11 − 31.12.132 11.04.12 143,648 − 275.80 − n/a n/a − n/a 143,648 01.01.12 – 31.12.143 09.04.13 − 85,770 466.10 − n/a n/a − n/a 85,770 01.01.13 − 31.12.154 T P Haywood 20.04.11 120,669 − 261.00 − n/a n/a − n/a 120,669 01.01.11 − 31.12.132 11.04.12 173,779 − 275.80 − n/a n/a − n/a 173,779 01.01.12 − 31.12.143 09.04.13 − 103,761 466.10 − n/a n/a − n/a 103,761 01.01.13 − 31.12.154 B A Melizan 19.04.10 104,909 − 236.50 104,909 462.50 462.50 − 558,116 − 01.01.10 − 31.12.121 20.04.11 99,746 − 261.00 − n/a n/a − n/a 99,746 01.01.11 − 31.12.132 11.04.12 143,648 − 275.80 − n/a n/a − n/a 143,648 01.01.12 − 31.12.143 09.04.13 − 85,770 466.10 − n/a n/a − n/a 85,770 01.01.13 − 31.12.154 D J Paterson 19.04.10 88,124 − 236.50 88,124 462.50 462.50 − 468,820 −† 01.01.10 − 31.12.121 20.04.11 99,746 − 261.00 − n/a n/a − n/a 99,746† 01.01.11 − 31.12.132 11.04.12 143,648 − 275.80 − n/a n/a − n/a 143,648† 01.01.12 − 31.12.143 A M Ringrose 19.04.10 176,248 − 236.50 176,248 462.50 462.50 − 937,639 − 01.01.10 − 31.12.121 20.04.11 167,574 − 261.00 − n/a n/a − n/a 167,574 01.01.11 − 31.12.132 11.04.12 241,329 − 275.80 − n/a n/a − n/a 241,329 01.01.12 − 31.12.143 09.04.13 − 144,094 466.10 − n/a n/a − n/a 144,094 01.01.13 − 31.12.154 D I Sutherland 19.04.10 77,180 − 236.50 77,180 462.50 462.50 − 410,598 − 01.01.10 − 31.12.121 20.04.11 89,528 − 261.00 − n/a n/a − n/a 89,528 01.01.11 − 31.12.132 11.04.12 128,933 − 275.80 − n/a n/a − n/a 128,933 01.01.12 − 31.12.143 09.04.13 − 85,770 466.10 − − − − n/a 85,770 01.01.13 − 31.12.154

#Includes dividend equivalent payment of 69.5p per vested share. †As at 30 April 2013, when Mr Paterson retired from the Board. *The maximum number of shares that could be receivable by the executive if performance conditions set out below are fully met:

92 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

1The EPS Performance Condition for the 2010 Awards

Adjusted Headline EPS growth of the Company over the performance period Vesting percentage of 50% of shares subject to the award Less than 5% 0% 5% to 20% 25% to 50% (pro-rated) 20% to 30% 50% to 100% (pro-rated) Greater than 30% 100%

2The EPS Performance Condition for the 2011 Awards

Adjusted Headline EPS growth of the Company over the performance period Vesting percentage of 50% of shares subject to the award Less than 15% 0% 15% to 30% 25% to 50% (pro-rated) 30% to 50% 50% to 100% (pro-rated) Greater than 50% 100%

The 2011 PSP awards were granted in the form of nil-cost options, exercisable between 20 April 2014 and 19 April 2016.

3The EPS Performance Condition for the 2012 Awards

Normalised EPS growth of the Company

• ver the performance period

Vesting percentage of two-thirds of shares subject to the award Less than 20% 0% 20% to 40% 20% to 50% (pro-rated) 40% to 60% 50% to 100% (pro-rated) Greater than 60% 100%

The 2012 PSP awards were granted in the form of nil-cost options, exercisable between 11 April 2015 and 10 April 2017.

4The EPS Performance Condition for the 2013 Awards

Normalised EPS growth of the Company

• ver the performance period

Vesting percentage of two-thirds of shares subject to the award Less than 49% 0% 49% to 58% 25% to 50% (pro-rated) 58% to 75% 50% to 100% (pro-rated) Greater than 75% 100%

The 2013 PSP awards were granted in the form of nil-cost options, exercisable between 9 April 2016 and 8 April 2018.

1234The TSR Performance Condition

This condition is determined by comparing the Company’s TSR performance to the TSR of each of a defjned list of comparator companies drawn from the Construction and Materials, and Support Services sectors comprising Atkins (WS), Babcock International, Balfour Beatty, Capita Group, Carillion, Costain Group, Kier Group, May Gurney Integrated Services (not after 2013), MITIE Group, Morgan Sindall, Mouchel Group (not after 2012), Rentokil Initial, Rok (not after 2011), RPS Group, Serco, Spice (not after 2011) and WSP Group (not after 2012). TSR ranking of the Company compared to the comparator group over the performance period Vesting percentage of 50% of shares subject to the award* Below median ranking 0% Median ranking (top 50%) 30% Median to upper quartile ranking 30% to 100% (pro-rated) Upper quartile ranking (top 25%) 100%

*Vesting percentage of 50 per cent was replaced by one-third for the 2012 and 2013 PSP awards.

The awards made in 2010 (measuring performance over the three years to 31 December 2012) vested in full on 19 April 2013 as the Company’s TSR performance was above the upper quartile (top 25 per cent) TSR performance against the peer group and EPS growth was greater than 30 per cent over the performance period (actual growth 149.7 per cent, including credit for the realised value from PFI investments).

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INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

Share options

The number of options over shares in the Company (pursuant to the 2002 Executive Share Option Scheme) held by each person who served as an executive director of the Company during the fjnancial year, is shown below. All options are fully vested, having achieved the respective performance conditions in previous fjnancial periods. No further grants will be made under this Scheme.

Executive director Date granted Balance as at 1 January 2013 Granted during year Market price at date of award pence Exercise price pence Exercised during year Market price at date of exercise pence Lapsed during year Amount realised on exercise £ Balance as at 31 December 2013 Exercise period

S L Dance 09.12.04 50,000 − 320.00 324.00 50,000 501.00 − 88,500 − 09.12.07 − 08.12.14 14.03.05 83,489 − 358.25 359.33 83,489 576.00 − 180,896 − 14.03.08 − 13.03.15 T P Haywood n/a − − n/a n/a − n/a − n/a − n/a B A Melizan 14.03.05 75,140 − 358.25 359.33 − n/a − − 75,140 14.03.08 − 13.03.15 D J Paterson 14.03.05 32,561 − 358.25 359.33 32,561

1

511.00 − 49,385 − 14.03.08 − 13.03.15 A M Ringrose 23.04.03 133,333 − 205.00 205.83 133,333 500.50 − 392,892 − 23.04.06 − 22.04.13 14.03.05 150,280 − 358.25 359.33 − n/a − n/a 150,280 14.03.08 − 13.03.15 D I Sutherland n/a − − n/a n/a − n/a − n/a − n/a

1Mr Paterson retired from the Board on 30 April 2013. These options were exercised on 16 May 2013.

No options were granted during the year (2012: nil). The aggregate gain made on the exercise of options was £711,673 (2012: £nil). The market price of the shares as at 31 December 2013 was 623.00p. The highest and lowest market prices of the shares during the fjnancial year were 677.00p and 391.10p respectively.

Sharesave Scheme

The following grants were made to the executive directors under the Interserve Sharesave Scheme 2009 during the year:

Executive director Number of shares Exercise price pence Face value1 £ Exercise period

S L Dance 226 398.00 1,061 01.06.16 − 30.11.16 T P Haywood 226 398.00 1,061 01.06.16 − 30.11.16 B A Melizan 226 398.00 1,061 01.06.16 − 30.11.16 D J Paterson2 − n/a − n/a A M Ringrose − n/a − n/a D I Sutherland 226 398.00 1,061 01.06.16 − 30.11.16

1Valued using the share price at the date of grant (4 April 2013), being 469.50p per share. 2David Paterson retired on 30 April 2013.

All eligible employees are entitled to apply for options under the Sharesave Scheme. The maximum monthly savings amount is set annually by the Remuneration Committee within HMRC limits. There are no performance conditions attached to these options. The difference between the market price on the grant date and the exercise price is that, under the Scheme rules, the exercise price is calculated by taking the average of the mid-market closing share price for the fjve dealing days immediately preceding the invitation date less a discount set by the Remuneration Committee of up to a maximum of 20 per cent.

94 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

The number of options over 10p ordinary shares in the Company (pursuant to the Sharesave Scheme) held by each person who served as an executive director of the Company during the fjnancial year, is shown below:

Executive director Date granted Balance as at 1 January 2013 Granted during year Market price at date of award pence Exercise price pence Exercised during year Market price at date of exercise pence Lapsed during year Amount realised

• n exercise

£ Balance as at 31 December 2013 Exercise period

S L Dance 07.08.09 595 − 218.70 152.50 595 497.00 − 2,050 − 01.10.12 − 31.03.13 14.05.10 423 − 215.25 214.50 423 506.00 − 1,233 − 01.07.13 − 31.12.13 15.04.11 390 − 260.50 231.00 − n/a − n/a 390 01.07.14 − 31.12.14 05.04.12 378 − 276.40 238.00 − n/a − n/a 378 01.07.15 − 31.12.15 04.04.13 − 226 469.50 398.00 − n/a − n/a 226 01.06.16 − 30.11.16 T P Haywood 15.04.11 390 − 260.50 231.00 − n/a − n/a 390 01.07.14 − 31.12.14 05.04.12 378 − 276.40 238.00 − n/a − n/a 378 01.07.15 − 31.12.15 04.04.13 − 226 469.50 398.00 − n/a − n/a 226 01.06.16 − 30.11.16 B A Melizan 15.04.11 390 − 260.50 231.00 − n/a − n/a 390 01.07.14 − 31.12.14 05.04.12 378 − 276.40 238.00 − n/a − n/a 378 01.07.15 − 31.12.15 04.04.13 − 226 469.50 398.00 − n/a − n/a 226 01.06.16 − 30.11.16 D J Paterson n/a − − n/a n/a − n/a − n/a −1 n/a A M Ringrose 07.08.09 595 − 218.70 152.50 595 497.00 − 2,050 − 01.10.12 − 31.03.13 14.05.10 423 − 215.25 214.50 423 506.00 − 1,233 − 01.07.13 − 31.12.13 05.04.12 378 − 276.40 238.00 − n/a − n/a 378 01.07.15 − 31.12.15 D I Sutherland 07.08.09 595 − 218.70 152.50 595 497.00 − 2,050 − 01.10.12 − 31.03.13 14.05.10 423 − 215.25 214.50 423 506.00 − 1,233 − 01.07.13 − 31.12.13 05.04.12 378 − 276.40 238.00 − n/a − n/a 378 01.07.15 − 31.12.15 04.04.13 − 226 469.50 398.00 − n/a − n/a 226 01.06.16 − 30.11.16

1As at 30 April 2013, when Mr Paterson retired from the Board.

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INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

Shareholding Guidelines

Executive directors are expected to build up a holding equivalent to 100 per cent of their base salary over time. A percentage of the Annual Variable Pay is required to be invested in Company shares and no fewer than 100 per cent of shares net of taxes following an option exercise or award vesting must be retained until such time as the shareholding guidelines have been met. Shares purchased under the Annual Variable Pay arrangements, Sharesave Scheme and SIP count toward this limit. Share

• ptions and vested, but unexercised, PSP awards do not count towards satisfying the shareholding guidelines.

Shareholdings of directors

The benefjcial interests of each person who served as a director of the Company during the fjnancial year in the ordinary share capital of the Company, together with interests held by his connected persons, are shown below, together with details

• f the extent to which the executive directors have met the requirement to hold shares to the value of 100 per cent of salary:

Director 31 December 2013 31 December 2012 31 December 2013 Benefjcially

• wned

Benefjcially

• wned

Outstanding ESOS awards (vested) Outstanding PSP awards (unvested) Outstanding Sharesave awards (unvested) % shareholding requirement (% of salary/fee) % actual shareholding (% of salary/fee)4

Executive directors S L Dance 101,383 99,988 − Not counted Not counted 100% 227% T P Haywood 29,390 17,960 − Not counted Not counted 100% 54% B A Melizan 101,183 101,112 Not counted Not counted Not counted 100% 227% D J Paterson 37,5001 47,391 − n/a − n/a n/a A M Ringrose 400,809 263,514 Not counted Not counted Not counted 100% 535% D I Sutherland 98,868 51,862 − Not counted Not counted 100% 222% Non-executive directors Lord Blackwell 10,000 10,000 − − − n/a n/a L G Cullen 10,000 10,000 − − − n/a n/a A K Fahy − −2 − − − n/a n/a K L Ludeman 3,000 3,000 − − − n/a n/a D A Thorpe 12,793 12,793 − − − n/a n/a D A Trapnell 4,5003 4,500 − − − n/a n/a

1As at 30 April 2013, when David Paterson retired from the Board. 2As at 1 January 2013 when Anne Fahy was appointed to the Board. 3As at 13 May 2013, when David Trapnell retired from the Board. 4Using a share price of 621.37p, being the three-month average to 31 December 2013.

The above fjgures include shares held in trust pursuant to the Interserve Share Incentive Plan 2009. Between the year end and the date of this report Steven Dance, Adrian Ringrose and Dougie Sutherland have purchased an additional 39 shares each pursuant to the Interserve Share Incentive Plan 2009. The shares were purchased on 10 January 2014 (18 shares each at 693.50p per share) and 10 February 2014 (21 shares each at 584.00p per share). There have been no further changes in the shareholdings of the directors who held offjce at the year end.

OTHER INFORMATION Dilution limits

Under present dilution limits the Company is permitted to allocate a rolling ten-year aggregate of up to 10 per cent of its

• rdinary share capital (12,910,681 shares) under all its share schemes. At 31 December 2013 there remained headroom

equivalent to 1,127,984 shares over which options may be granted under the Company’s share schemes. It is currently anticipated that all exercises of options and awards made under the 2002 Executive Share Option Scheme and the Performance Share Plan will be satisfjed by newly issued shares.

96 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

GOVERNANCE AND OPERATION OF THE REMUNERATION COMMITTEE Role and membership

The Committee is responsible for determining, on behalf of the Board, the remuneration of all executive directors, the Group Chairman and the Company Secretary. The terms of reference of the Committee are available on the Company’s website at www.interserve.com and on request. The Committee’s role is, after consultation with the Group Chairman and/or the Chief Executive (except when determining their own remuneration), to set the remuneration policy and determine the individual remuneration and benefjt packages of the Group Chairman, the Chief Executive and the senior management team (comprising the executive directors, the Company Secretary and the other senior executives below the Board who report to the Chief Executive). This includes formulating for Board approval long-term incentive plans which require shareholder consent and overseeing their operation. The Committee also monitors the terms of service for, and level and remuneration structure of, other senior management. The table below lists the members of the Committee who served during the year and are regarded as independent by the Board. Their attendance at the meetings of the Committee was as follows:

Name Number of meetings attended out of potential maximum

D A Thorpe (Committee Chairman) 6 out of 6 Lord Blackwell 6 out of 6 L G Cullen 6 out of 6 A K Fahy 6 out of 6 K L Ludeman 6 out of 6 D A Trapnell1 2 out of 2

1Mr Trapnell retired from the Board on 13 May 2013.

The Committee meets as often as is necessary to discharge its duties and met six times during the year ended 31 December 2013. The Chief Executive and Group Finance Director may be invited to attend meetings as appropriate. No member of the Committee has any personal fjnancial interest in the Company (other than as a shareholder), any confmict of interest arising from cross-directorships, or any day-to-day involvement in running the business. No individual is present when matters relating directly to their own remuneration are discussed.

Advisers

In determining the executive directors’ remuneration, the Committee consulted with and received recommendations from Adrian Ringrose, the Chief Executive. The Committee also received advice from New Bridge Street (“NBS”), a trading name of Aon Hewitt (a subsidiary of Aon plc), and Trevor Bradbury, the Company Secretary, which materially assisted the Committee in relation to the 2013 fjnancial year. Executives are not present when matters affecting their own remuneration arrangements are decided. Aon plc also provides insurance broking services to the Company though a separate business division to Aon Hewitt. The Committee has been advised that NBS operates as a distinct business within the Aon Group and that there is a robust separation between the business activities and management of NBS and all other parts of Aon Hewitt and the wider Aon Group. The Committee is satisfjed that these additional services in no way compromised the objectivity and independence of advice provided by NBS. The terms of NBS’s appointment and their performance is reviewed regularly by the Committee. NBS meets either on a one-to-one basis with the Committee Chairman, or with the Company Secretary present, as necessary, to discuss matters such as topical issues in remuneration which are of particular relevance to the Company or if there are specifjc pieces of work which the Committee requires to be undertaken. The total fees paid to NBS in respect of its services to the Committee during the year was £21,505. These fees relate to sundry ongoing advice, in line with NBS’s role of providing

• ngoing support and advice to the Committee over the entire

remuneration year. This included:

• performance monitoring of the TSR element of the

Performance Share Plan;

• review of vesting documentation for the Performance

Share Plan;

• IFRS 2 option valuation;
• assistance with the drafting of the Directors’

Remuneration Report; and

• updates on developments in remuneration practice.

Any fees for major projects would normally be negotiated in advance of such a project being undertaken. NBS is a signatory to the Remuneration Consultants’ Code of Conduct and has confjrmed its compliance with the Code.

GOVERNANCE

DIRECTORS’ REMUNERATION REPORT CONTINUED

97

OVERVIEW STRATEGIC REPORT GOVERNANCE FINANCIAL STATEMENTS

Statement of shareholder voting at AGM

At the AGM held on 13 May 2013, the Directors’ Remuneration Report received the following votes from shareholders:

Resolution text Votes for % for Votes against % against Total votes cast Votes withheld

To approve the directors’ remuneration report for the year ended 31 December 2012 78,813,187 97.04 2,398,957 2.95 81,219,568 7,424

Shareholder engagement

During the year the Committee engaged with a shareholder on the outturn of the Annual Variable Pay scheme (noting the wish for more detail to be disclosed retrospectively) and the strategic reasoning behind the decision to weight the performance targets two-thirds one-third in favour of EPS over TSR in support of the Board’s aspiration of doubling EPS over fjve years from a 2010 base.

APPROVAL

This report was approved by the Board of Directors on 28 February 2014 and signed on its behalf by: David Thorpe Chairman of the Remuneration Committee 28 February 2014

INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ REMUNERATION REPORT

GOVERNANCE

DIRECTORS’ RESPONSIBILITY STATEMENT

The directors are responsible for preparing the Annual Report and the fjnancial statements in accordance with applicable law and regulations. Company law requires the directors to prepare fjnancial statements for each fjnancial year. Under that law the directors are required to prepare the Group fjnancial statements in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union and Article 4 of the IAS Regulation and have elected to prepare the parent Company fjnancial statements in accordance with United Kingdom Generally Accepted Accounting Practice (“UK GAAP”) (UK Accounting Standards and applicable law). Under company law the directors must not approve the accounts unless they are satisfjed that they give a true and fair view of the state of affairs of the Company and of the profjt or loss of the Company for that period. In preparing the parent Company fjnancial statements, the directors are required to:

• select suitable accounting policies and then apply

them consistently;

• make judgements and estimates that are reasonable

and prudent;

• state whether applicable UK Accounting Standards

have been followed, subject to any material departures disclosed and explained in the fjnancial statements; and

• prepare the fjnancial statements on the going

concern basis unless it is inappropriate to presume that the Company will continue in business. In preparing the Group fjnancial statements, International Accounting Standard 1 requires that directors:

• properly select and apply accounting policies;
• present information, including accounting policies,

in a manner that provides relevant, reliable, comparable and understandable information;

• provide additional disclosures when compliance with

the specifjc requirements in IFRSs are insuffjcient to enable users to understand the impact of particular transactions, other events and conditions on the entity’s fjnancial position and fjnancial performance; and

• make an assessment of the Company’s ability to

continue as a going concern. The directors are responsible for keeping adequate accounting records that are suffjcient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the fjnancial position of the Company and enable them to ensure that the fjnancial statements comply with the Companies Act 2006. They are also responsible for safeguarding the assets of the Company and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors confjrm that, to the best of their knowledge: (a) the Company and Group fjnancial statements in this Annual Report, which have been prepared in accordance with UK GAAP and IFRS, respectively, give a true and fair view of the assets, liabilities, fjnancial position and profjt

• f the Company and of the Group taken as a whole;

(b) the Strategic Report contained in this Annual Report includes a fair review of the development and performance of the business and the position of the Company and the Group taken as a whole, together with a description of the principal risks and uncertainties that they face; and (c) the Annual Report and Financial Statements, taken as a whole, are fair, balanced and understandable and provide the information necessary for shareholders to assess the Company’s performance, business model and strategy. By order of the Board A M Ringrose T P Haywood Chief Executive Group Finance Director 28 February 2014

98 INTERSERVE ANNUAL REPORT 2013 GOVERNANCE DIRECTORS’ RESPONSIBILITY STATEMENT